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Year 9 · Money

Compound interest

Interest is money earned or paid on an amount. Simple interest is the same each year; compound interest grows on itself.

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How to do it

  1. Simple: I = principal × rate × time.
  2. Compound: amount = principal × (1 + rate)ᵗ.

Worked example

$1000 is invested at 8% per year, compounded yearly, for 3 years. What is it worth at the end? Give cents.
A = P(1 + r)ᵗ = 1000 × 1.08³ = 1259.71.
Answer: 1259.71

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Write the rate as a decimal: 5% = 0.05.

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