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Simple Interest And Compound Interest


Given a choice between the 2 different types of interest, which will you choose? This is taught under Elementary Mathematics (E-Math)

Before you make the smart choice, let's examine the differences between these 2 different types of interest through an example.

CASE OF SIMPLE INTEREST

alwaysLovely deposited $1000 into Bank A for 2 years which pays a simple interest of 10% p.a.( per annum --> per year). How much will she get at the end of 2 years?

1 year -->10% , 2 years --> 20%

Total interest earned for 2 years = 1000 * 20% = $200

Total amount = $1000 + $200 = $1200

CASE OF COMPOUND INTEREST

alwaysLovely deposited $1000 into Bank B for 2 years which pays a compound interest of 10% p.a. How much will she get at the end of 2 years?

Interest earned in Year 1 = 1000 * 10% = $100

Principal Amount for Year 2 = $1000 + $100 = $1100

Interest earned in Year 2 = 1100 * 10% = $110 /*Interest is calculated based on the new principal amount*/

Total amount received for 2 years = $1000 + $100 + $110 = $1210

So which is better, Bank A or Bank B ?

Check out the next post on Formulae Usage on Simple And Compound Interest which will reduce your time to reach your correct answer.

Ai Ling Ong

Hi, I'm Ai Ling Ong. I enjoy coaching students who have challenges with understanding and scoring in 'O' Level A-Maths and E-Maths. I develop Math strategies, sometimes ridiculous ideas to help students in understanding abstract concepts the fast and memorable way. I write this blog to share with you the stuff I teach in my class, the common mistakes my students made, the 'way' to think, analyze... If you have found this blog post useful, please share it with your friends. I will really appreciate it! :)

Filed Under: E-Maths Tagged With: compound interest, simple interest

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    March 28, 2008 at 10:58 am

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