Simple & Compound Interest • Topic 2 of 4

Compound Interest

Compound interest reinvests each period's interest, so Amount = P(1 + R/100)^T and CI = Amount - P. For two years, expanding gives CI = P(2R/100 + (R/100)^2). A neat trick: a 10% annual CI multiplies the principal by 1.1 each year, so 2 years is x 1.21 (a 21% rise), 3 years x 1.331. Treat each year as a successive percentage increase.

✅ Solved examples

1. CI on 10000 at 10% for 2 years?
A = 10000 x 1.1^2 = 12100; CI = 2100.
2. CI on 8000 at 5% for 2 years?
A = 8000 x 1.05^2 = 8820; CI = 820.
3. A sum at 20% CI for 2 years gives CI 4400. Principal?
Factor 1.2^2 = 1.44, CI fraction 0.44; P = 4400/0.44 = 10000.
4. Amount on 6250 at 4% CI for 2 years?
6250 x 1.04^2 = 6250 x 1.0816 = 6760.

✏️ Practice — try these, take hints as needed

1. CI on 5000 at 10% for 2 years?
x 1.21.
6050 - 5000.
—
1050
2. CI on 12000 at 5% for 2 years?
x 1.1025.
13230 - 12000.
—
1230
3. Amount on 20000 at 10% CI for 3 years?
x 1.331.
20000 x 1.331.
—
26620
4. CI on 4000 at 25% for 2 years?
1.25^2 = 1.5625.
6250 - 4000.
—
2250
5. P if CI at 10% for 2 years is 420?
CI fraction 0.21.
420/0.21.
—
2000

📝 Topic test — 8 questions

Auto-graded with full solutions; saved to your dashboard. Use the calculator and formula sheet (top-right) any time.

Loading questions…
← Simple Interest SI vs CI →