True or False? Simple interest is based on the original amount (rather than the current amount).

True. Simple interest is based on the original amount (rather than the current amount). E.g. If you are investing $500 over a period of 3 years, simple interest would be calculated based only on the original $500.

How do you calculate the final balance after simple interest has been earned? E.g. $300 earning 4% simple interest per year for 6 years.

To calculate the final balance after simple interest has been earned, find a percentage (the percentage rate) of the starting amount using a multiplier. Multiply this by the number of time periods (years) it is applied for. Add this on to the starting amount. E.g. (300 × 0.04 × 6) + 300 = 372

Define compound interest .

Compound interest is interest calculated on the running total rather than on the starting amount. Each year's interest is therefore worked out on a balance that already includes the interest earned before it.

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Simple & Compound Interest (Cambridge (CIE) IGCSE Maths: Core): Flashcards

Exam code: 0580 & 0980

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FrontSimple Interest
True or False?
Simple interest is based on the original amount (rather than the current amount).

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True or False?
Simple interest is based on the original amount (rather than the current amount).
True.
Simple interest is based on the original amount (rather than the current amount).
E.g. If you are investing $500 over a period of 3 years, simple interest would be calculated based only on the original $500.
How do you calculate the final balance after simple interest has been earned?
E.g. $300 earning 4% simple interest per year for 6 years.
To calculate the final balance after simple interest has been earned, find a percentage (the percentage rate) of the starting amount using a multiplier.
Multiply this by the number of time periods (years) it is applied for.
Add this on to the starting amount.
E.g. (300 × 0.04 × 6) + 300 = 372
Given an original amount, the final amount and the rate of simple interest, how can you calculate the number of time periods over which the interest is paid?
E.g. Simple interest is added to an investment of $600 at a rate of 3.5% per year leading to a final amount of $684. For how many years was interest at this rate paid?
Given an original amount, the final amount and the rate of simple interest, you can calculate the number of time periods over which the interest is paid by subtracting the original amount from the final amount (finding the total interest) and dividing the result by the original amount and the rate of simple interest.
E.g. $\frac{684 - 600}{600 \times (\frac{3.5}{100})} = 4$
Define compound interest.
Compound interest is interest calculated on the running total rather than on the starting amount.
Each year's interest is therefore worked out on a balance that already includes the interest earned before it.
$100$ earns $10 %$ compound interest a year. Why is the second year's interest $11$ rather than $10$ ?
Because the first year's $10$ has already been added on, so the second year's $10 %$ is taken of $110$ instead of $100$ .
That gives $11$ , and the balance rises to $121$ .
$2000$ is subject to $4 %$ compound interest each year for $12$ years. Fill in the two gaps.
The final balance is found by multiplying $2000$ by a multiplier of $______$ raised to the power $______$ altogether.
The completed sentence is:
The final balance is found by multiplying $2000$ by a multiplier of $1.04$ raised to the power $12$ altogether.
That gives $2000 \times 1 . 04^{12} = 3202.06$ .
True or False?
Working out $2000 \times 1 . 04^{12}$ tells you the interest earned over the $12$ years.
False.
It gives the total balance at the end, which still includes the original $2000$ .
Subtract the original amount to get the interest earned, which is $3202.06 - 2000 = 1202.06$ .
A car worth $16000$ loses $15 %$ of its value each year. How do you find its value after $6$ years?
Raise the decrease multiplier to the power $6$ , since the fall happens six times over.
Here that is $16000 \times 0 . 85^{6} = 6034.39$ , and a repeated percentage fall like this is called depreciation.
What is the formula for the final balance under compound interest?
The final balance is $P {(1 + \frac{r}{100})}^{n}$ , where $P$ is the original amount, $r$ is the percentage rate and $n$ is the number of years.
The bracket comes out to the same value as the multiplier, so a rate of $15$ gives $1.15$ .

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