Compound Interest

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Preview AQA GCSE style questions on Compound interest. Click "Show Solution" to see the step-by-step answer.

EasyQuestion 1

[2 marks]

£500 is invested at 3% compound interest per year. Calculate the value after 2 years.

MediumQuestion 2

[3 marks]

£2000 is invested at 4.5% compound interest. Calculate: (a) The value after 3 years (b) The total interest earned

HardQuestion 3

[4 marks]

A car worth £15,000 depreciates by 12% each year. After how many complete years will the car first be worth less than £8000?

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About Compound interest in AQA GCSE

Compound interest is when interest is calculated on the original amount AND on previously earned interest. This makes money grow faster than simple interest. **The Formula:** Final Amount = P × (1 + r/100)ⁿ Where: - P = Principal (starting amount) - r = Interest rate (as a percentage) - n = Number of years/periods **Using Multipliers:** - 5% increase: multiply by 1.05 - 3% increase: multiply by 1.03 - For n years: multiply by (1 + r/100)ⁿ **Example:** £1000 invested at 4% compound interest for 3 years: = £1000 × 1.04³ = £1000 × 1.124864 = £1124.86 **Compound vs Simple Interest:** - Simple: Interest only on original amount - Compound: Interest on original + accumulated interest - Compound always gives more (for same rate and time) **Depreciation:** Same principle but with decrease: Final Value = P × (1 - r/100)ⁿ **Exam Tips:** - Use multipliers for efficiency - Round only at the final step - Check if question asks for interest earned or total amount