1 / 4

Useful Savings Facts & Formulae

This guide explains the formula for calculating the final amount from a principal when earning compound interest at an annual rate over several years. We illustrate the compound interest formula ( A = P(1 + R)^n ) and provide examples, including investments of £2000 and £6000 at specified rates. We also detail how to calculate the Annual Equivalent Rate (AER) and provide examples, showing how to derive interest earned and future value for different investments.

kasen
Télécharger la présentation

Useful Savings Facts & Formulae

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. A n R= – 1 P When a principal £P earns compound interest at an annual rate R for n years, the final amount is: A = P (1 + R)n The annual rate at which a principal £P would increase to an amount £P in nyears is: Interest earned in 1 year Amount at the beginning of the year  100% Useful Savings Facts & Formulae The amount invested is called the principal AER = The AER corresponding to rate r added n times per year is: R = (1 + r)n – 1

  2. 4.2 R= = 0.042 100 A = P (1 + R)n Example Neil invests £2000 at 4.2% per annum. Calculate the amount after 10 years. A = 2000(1 + 0.042 )10 = 2000x 1.04510 = 3017.916… Amount = £3017.92 (nearest pence)

  3. Interest earned in 1 year b) AER =  100% Amount at the beginning of the year 256.91 =  100% 6000 Kate invests £S at 0.35% per month. Example The amount after nyears isP = S 1.0035 12n a) Kate invests £6000. Find the amount at the end of 1 year. b) Hence find the AER. a) P= 6000  1.003512 = 6256.908… Amount at the end of 1 year = £6256.91 (nearest pence) AER = 4.28%

  4. A n R= – 1 P – 1 4 = 4 4600 – 1 1.31428... R = 3500 – 1 1.07071... = Example An investment of £3500 has grown to £4600 in 4 years. Find the annual percentage rate of interest. = 0.07071... Annual % rate = 7.07% (to 3 sf)

More Related