Compound interest using a formula questions are fairly popular on GCSE mathematics papers, usually around question 10, in the middle of the paper. They are classified as ‘functional maths,’ meaning that you might use this type of calculation in real life. Even if you can’t get a 4% compound interest rate 🙂
This particular question is around GCSE grade 4 – 5 (B in old money) and deals with using the formula:
Amount after n years = starting amount x (multiplier)^n
You’re asked to calculate the amount after 3 years with £4500 and a 4% compound interest rate. The main issue is to change the 104% to 1.04 and then you can plug the numbers directly into your calculator – these type of GCSE questions are generally on the calculator paper.
I’ve also added a couple of additional videos – one to show how the formula can be used to calculate compound decrease, the other to calculate the interest rate when you know how much you’ve earned after 2 years. Both of these types of questions regularly appear in GCSE mathematics questions on compound interest using a formula.
- 4% is actually 104% as you need to leave the original 100% in the bank.
- This will change – “104%” means 104/100 which equals 1.04.
- The formula can also be used to calculate ‘compound depreciation’
Watch on YouTube