Simple Interest Flashcards

All 6 cards in this deck

What is simple interest?

Interest calculated only on the original amount (the principal), so the same amount of interest is earned each year.

What is the formula for the simple interest earned over $n$ years?

e.g. £500 invested at 3% per annum for 4 years

$I = P \times \frac{r}{100} \times n$

e.g. $500 \times 0.03 \times 4 = £60$

True or false? With simple interest, the amount of interest earned gets bigger each year.

False. It is the same every year, because it is always a percentage of the original amount only.

True or false? At the same rate, simple interest and compound interest give the same total after 1 year.

True. They only differ from the second year onwards, once interest starts earning interest.

Over more than one year at the same rate, which earns more: simple interest or compound interest?

Compound interest, because interest is earned on the interest already added.

What are the steps to find the value of an investment after $n$ years of simple interest?

e.g. £2000 at 5% per annum for 3 years

1. One year's interest: $2000 \times 0.05 = 100$
2. Multiply by the years: $100 \times 3 = 300$
3. Add to the principal: $2000 + 300 = £2300$