M4.2.3 For the adult
Simple and compound interest
Two savings clubs both add 5% a year to the coins I put in. Why does one of them give more?
What this chapter teaches
Simple interest is always worked out on the start amount, so a graph of it is a straight line. Compound interest is worked out on the growing amount, so it is the start multiplied by the multiplier once for every year, and its graph bends upward.
Three questions to ask
There is no one right wording. Listen for the idea.
- How much simple interest does 2 000 coins earn in a year at 4%?
- Why does compound interest give more than simple interest after the first year?
- What number do you multiply by each year for compound interest at 5%?
After the chapter, the learner can
- Work out simple interest on 2 000 coins at 4% a year
- Find the value after 3 years of 5% compound interest
- Compare simple and compound interest in a table over 10 years
What they copy into their notebook
Simple interest: start × rate × years, the same each year. Compound interest: multiply by 1 + rate once for every year. Compound is ahead after year 1.