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Compound interest and depreciation questions are a key part of the Edexcel GCSE Mathematics (1MA1) specification. They build on the percentage multiplier skills from the previous lesson. These questions appear on calculator papers (Papers 2 and 3) and, in simpler forms, on Paper 1 (non-calculator).
| Term | Meaning |
|---|---|
| Simple interest | Interest calculated only on the original amount (principal) |
| Compound interest | Interest calculated on the principal plus previously earned interest |
| Depreciation | A decrease in value over time (e.g. a car losing value) |
| Principal (P) | The initial amount invested or borrowed |
| Rate (r) | The percentage rate per time period |
| Per annum | Per year |
With simple interest, the interest is calculated on the original amount only each time period.
Formula: Interest = P x r/100 x n
where P = principal, r = rate (%), n = number of years.
Worked Example 1: Calculate the simple interest on 3,000 pounds at 4% per annum for 5 years.
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