Simple and compound interest · Grade 8
In Grade 8 you learn: simple interest.
Interest is money paid to you for saving, or charged to you for borrowing. Simple interest is the same every year; compound interest is also paid on the interest already earned, so it grows faster. The same ideas describe depreciation, inflation and hire purchase.
Key facts
- Simple interest: I = P × r × n (r as a decimal, n in years). The total is P + I.
- Hire purchase: total paid = deposit + all the instalments. The extra cost is total paid − cash price.
Worked examples
Example 1
£5,000 is invested at 6% simple interest per year for 4 years. How much is it worth at the end?
Answer: £6,200