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Simple Interest Practice Problem
SIMPLE INTEREST PRACTICE PROBLEM
Principal = £ 2,100 Annual rate of interest = 11%
Interest per year = ____________
Total interest (2 years) = ________________
Total amount owed after 2 years = ______________
Compound Interest
Interest on both the principal (starting amount) and the interest paid on that loan.
Example: If you borrow £1,000 (principal) with 10% interest compounded annually, you’d have £100 (£1,000 x 10% or .10 = £100) in interest in the 1st year. If you’ve paid nothing after 1 year, you will owe £1,100.
But, after the 2nd year you will owe £1,210 (£1,210 = £1,100 x 0.10 or 10%) because now you have to pay 10% of £1,100 instead of just the principal of £1,100.
COMPOUND INTEREST PRACTICE PROBLEM
Find the compound interest and the total amount owed back after two years. Principal = £ 2,100 Annual rate of interest = 11%
Interest in 1st year = ____________ Total amount after 1st year = Total interest in 2nd year = ________________ Total amount owed after 2 years = ______________ In which example, simple interest or compound interest do you owe more?
