Dr. J's Maths.com
Where the techniques of Maths
are explained in simple terms.

Financial Maths - Compound Interest.
Test Yourself 1 - Solutions.


 

The formula for compound interest is:

REMEMBER: This calculation provides the total value of the investment -
that is the investment PLUS the interest earned.

 

When entering the values into your calculator DO NOT change the percentage to a decimal.
Enter it as given in the question and then add the % sign.
The number then is the same as in the question and you do not make an error (often accidental)
in entering a number which is not in the question.

Many people - those who do not understand calculators - will try to make you use decimals.

 
Interest rate. 1. % rates equivalent to 12% p.a.:

  2. Annual percentage rate equivalents:

Amount received. 3. Compound interest (to the nearest dollar):

 

4.

 
  5. 4 complete years

Interest received.

6.

  7.
 

8.

Present investment amounts. 9.
  10.
  11.
  12.
  13.
Simple & compound interest compared.

14.(i)

(ii)

The two amounts are the same because there was only one compounding period. In this conrext, the two different approaches produce the same result.
  15.
 

16.(i)

(ii)

(iii)