Compound Interest & Depreciation (Edexcel IGCSE Maths A)

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 at a rate of % for years. The final amount is found by calculating .

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).

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.

For a reverse percentage problem, you can find the original amount by dividing the final balance by the compounded interest rate.

E.g.

Depreciation is where an item loses value over time.

An item that initially had a value of depreciates at a rate of % each year. After years the value of the item can be found by calculating .

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).