True or False? Compound interest is where interest is calculated based on the current amount (rather than the original amount).

True. Compound interest is where interest is calculated based on the current amount (rather than the original amount). E.g. If you are investing $500 over a period of 3 years, compound interest would be calculated on the amount in the account at the end of each time period (including any interest that has been added from previously).

True or False? Compound interest is the same as a repeated percentage increase .

True. Compound interest is the same as a repeated percentage increase . E.g. For an investment of £400 with an interest of 3% over a period of 5 years, the final amount can be calculated by finding a 3% increase, five times in a row ( 400 x 1.03 5 ).

True or False? If compound interest is applied to an amount each year, then the amount increases by the same value each year.

False. If compound interest is applied to an amount each year, then the amount does not increase by the same value each year. The amount of interest increases each year. For example, compound interest on $100 at 10% each year, increases by $10 in the first year and then $11 in the second year.

Define the term depreciation .

Depreciation is where an item loses value over time.

True or False? Depreciation is the same as a repeated percentage decrease .

True. Depreciation is the same as a repeated percentage decrease . E.g. For an item with an original value of £200 that depreciates in value by 4% each year over a period of 6 years, its value at the end of 6 years can be calculated by finding a 4% decrease, six times in a row ( 200 x 0.96 6 ).

IGCSEMathsEdexcelMaths A (Modular)Higher Unit 2FlashcardsNumberCompound Interest & Depreciation

Compound Interest & Depreciation (Edexcel IGCSE Maths A (Modular))

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FrontCompound Interest
True or False?
Compound interest is where interest is calculated based on the current amount (rather than the original amount).

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True or False?
Compound interest is where interest is calculated based on the current amount (rather than the original amount).
True.
Compound interest is where interest is calculated based on the current amount (rather than the original amount).
E.g. If you are investing $500 over a period of 3 years, compound interest would be calculated on the amount in the account at the end of each time period (including any interest that has been added from previously).
Compound interest is applied to the amount $P$ at a rate of $r$ % each year. Write down the equation for the amount after $n$ years.
Compound interest is applied to the amount $P$ at a rate of $r$ % for $n$ years. The final amount is found by calculating $P {(1 + \frac{r}{100})}^{n}$ .
True or False?
Compound interest is the same as a repeated percentage increase.
True.
Compound interest is the same as a repeated percentage increase.
E.g. For an investment of £400 with an interest of 3% over a period of 5 years, the final amount can be calculated by finding a 3% increase, five times in a row ( 400 x 1.03⁵).
True or False?
If compound interest is applied to an amount each year, then the amount increases by the same value each year.
False.
If compound interest is applied to an amount each year, then the amount does not increase by the same value each year. The amount of interest increases each year.
For example, compound interest on $100 at 10% each year, increases by $10 in the first year and then $11 in the second year.
How do you calculate the original amount if you are given the final balance after compound interest has been applied?
E.g. Given that the final amount in a savings account after a period of 2 years at an interest rate of 5% is $771.75, find the original investment.
For a reverse percentage problem, you can find the original amount by dividing the final balance by the compounded interest rate.
E.g.
$\begin{array}{rcl} 771.75 & = & P \times {(1 + \frac{5}{100})}^{2} \\ 771.75 & = & P \times 1 . 05^{2} \\ \frac{771.75}{1 . 05^{2}} & = & P \\ P & = & $ 700 \end{array}$
Define the term depreciation.
Depreciation is where an item loses value over time.
An item that initially had a value of $P$ depreciates at a rate of $r$ % each year. Write down the equation for the value of the item after $n$ years.
An item that initially had a value of $P$ depreciates at a rate of $r$ % each year. After $n$ years the value of the item can be found by calculating $P {(1 - \frac{r}{100})}^{n}$ .
True or False?
Depreciation is the same as a repeated percentage decrease.
True.
Depreciation is the same as a repeated percentage decrease.
E.g. For an item with an original value of £200 that depreciates in value by 4% each year over a period of 6 years, its value at the end of 6 years can be calculated by finding a 4% decrease, six times in a row ( 200 x 0.96⁶).

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