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      Checking and securing understanding of compound interest calculations

      Lesson details

      Learning outcome

      I can calculate compound interest.

      Key learning points

      1. Compound interest can be thought of as a geometric sequence
      2. You can apply your knowledge of geometric sequences to solve algebraic compound interest problems

      Keywords

      • Simple interest - Interest is money added to savings or loans. Simple interest is always calculated on the original amount.

      • Compound interest - Compound interest is calculated on the original amount and the interest accumulated over the previous period.

      Common misconception

      Pupils get confused between simple interest and compound interest. When presented with a compound interest problem the common error is for pupils to add the same constant amount.

      Visual representations are helpful here. The bar models in the first part of the lesson show how compound interest grows year on year. The graphical representation also demonstrates the fundamental difference between the two forms of interest.

      Teacher tip

      In learning cycle 2, it is possible to be more efficient by not pressing the ANS key as the calculator will use the last calculated value due to the order of operations. Insistence on pressing the ANS key is to prepare pupils for iterative formulas where this is needed.

      Licence

      This content is © Oak National Academy Limited (2025), licensed on Open Government Licence version 3.0
      except where otherwise stated. See Oak's terms & conditions
      (Collection 2).

      Lesson video

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      Prior knowledge starter quiz

      6 Questions

      Q1.
      When money is added to savings or loans it is called...

      Correct answer: interest
      gifting
      donating
      taxing

      Q2.
      $$12$$% of $$800$$ is . You may use a calculator.

      Correct Answer: 96

      Q3.
      $$800$$ increased by $$12$$% is __________. You may use a calculator.

      96
      812
      8.12
      Correct answer: 896
      960

      Q4.
      $$7\times7\times7\times7\times7$$ simplifies to...

      $$35$$
      $$7^7$$
      Correct answer: $$7^5$$
      $$5^7$$
      $$2401$$

      Q5.
      Which of the below will affect an increase of $$2.5$$%?

      $$\times2.5$$
      $$\times1.25$$
      Correct answer: $$\times1.025$$
      $$\times0.025$$
      $$\times102.5$$

      Q6.
      An amount increased by $$20$$% then increased by $$10$$% will experience an overall increase of %

      Correct Answer: 32, 32%

      6 Questions

      Q1.
      $$£250+(0.02\times250)+(0.02\times250)+(0.02\times250)$$ is an example of a __________ interest calculation.

      Correct answer: simple
      compound

      Q2.
      $$£250\times1.02^3$$ is an example of a __________ interest calculation.

      simple
      Correct answer: compound

      Q3.
      $$£400$$ is invested at a rate of $$4.2$$% interest for $$5$$ years. What multiplier would we use in a compound interest calculation?

      $$4.2$$
      $$1.42$$
      $$104.2$$
      Correct answer: $$1.042$$
      $$1.04$$

      Q4.
      $$£400$$ is invested at a rate of $$4.2$$% interest for $$5$$ years. The values at the end of each year will form __________ sequence.

      an arithmetic
      Correct answer: a geometric
      a quadratic
      a fibonacci

      Q5.
      $$£400$$ is invested at a rate of $$4.2$$% interest for $$5$$ years. What is the value of the investment at the end of the $$5$$ years? $$£$$

      Correct Answer: 491.36, £491.36

      Q6.
      $$£500$$ is put into a savings account at a rate of $$4$$% compound interest p.a. After how many years will the investment reach $$£1000$$?

      Correct Answer: 18, 18 years, Eighteen, Eighteen years

      To help you plan your 11 maths lesson on: Checking and securing understanding of compound interest calculations, download all teaching resources for free and adapt to suit your pupils' needs...