Compound Interest and Depreciation

Compound interest and depreciation are among the most practical topics in GCSE Mathematics — they apply directly to savings, loans, and the value of cars and other assets. AQA tests these topics on both Foundation and Higher tier papers. This lesson covers simple interest, compound interest using multipliers, and depreciation.

---

Simple Interest

Simple interest is interest calculated only on the original amount (the principal). The interest is the same each year.

Formula

Simple Interest = (Principal x Rate x Time) / 100

Where:

• Principal = the amount invested or borrowed
• Rate = the annual interest rate (as a percentage)
• Time = the number of years

Worked Example 1: 2,000 pounds is invested at 3% simple interest per year. How much interest is earned after 5 years?

• Interest = (2,000 x 3 x 5) / 100 = 300 pounds
• Total after 5 years = 2,000 + 300 = 2,300 pounds

---

Compound Interest