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Maths Exercices

Compound interest

In the real world, simple interest is normally used for a single period of less than a year, such as 30 or 60 days, because it is calculated on the original amount only. If your interest accumulated annually, you'd get a very different sum.

Compound interest is interest that accumulates on the original amount and all money that accumulated during each period.

The formula for compound interest is:

A=p(1+r)t

where A represents the final amount, t represents the time in years, p is teh principal (starting amount), and r is the interest rate expressed as a decimal.



Keisha has $90 in a savings account. The interest rate is 10%, compounded annually. To the nearest cent, how much interest will she earn in 2 years?

A= p(1 + r)t
Ais the balance (final amount).
p is the principal (starting amount).
r is the interest rate expressed as a decimal.
t is the time in years.
The interest is the balance minus the principal.

Write the rate as a decimal.

10% = 0.1

Calculate the balance.

A
 = 
p
(
1  + 
r
)
t
 

 = 
$90
(
1  +  0.10
)
2
 

 = 
$90
( 1.10 )
2
 

 = 
$90
( 1.2100 )

 =  $108.90

Now use this to find the interest, which is the balance minus the principal.

$108.90 – $90 = $18.90


The interest will be $18.90.