# 1.13.1 Compound Interest

#### What is compound interest?

• Compound interest is where interest is paid on the interest from the year (or whatever time frame is being used) before as well as on the original amount
• This is different from simple interest where interest is only paid on the original amount

#### How do you work with compound interest?

• For COMPOUND changes (can be a decrease as well as an increase):
• Keep multiplying by the decimal equivalent of the percentage you want
• Otherwise do the same as normal:
• Identify “before” & “after” quantities
• FIND percentage we want:
• Increase – ADD percentage to 100
• Decrease – SUBTRACT from 100
• Write down a STATEMENT connecting “before” and “after”:
• “after is a percentage of before”
• Write down the statement as an EQUATION using decimal equivalent
• remember “is” means “=”
• SUBSTITUTE and SOLVE

#### Exam Tip

This method works for any Compound Change – increase or decrease.

Remembering “✕ m ✕ m ✕ m = ✕ m3″ can make life a lot quicker:

It is usually much easier to multiply by decimal equivalent raised to a power than to multiply by the decimal equivalent several times in a row.

### Worked Example

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