01 Key Concepts
Compounding
Interest is added to the principal at regular intervals, and future interest is calculated on this new, larger amount.
Compound Interest Formula
Amount = P x (1 + R/100)^T, where T is the number of compounding periods.
Finding CI
Compound Interest = Amount - Principal.
Compounding Frequency
Interest can compound annually, semi-annually, quarterly, or monthly; the rate and time must match the compounding period.
CI vs. SI
Compound interest is always equal to or greater than simple interest for the same P, R, T (for T > 1), because it earns 'interest on interest'.
03 Key Formulas
- Amount = P x (1 + R/100)^T
- CI = Amount - P
04 Solved Examples
Example 1 Find the compound interest on $1,000 at 10% per year for 2 years.
- Amount = 1000 x (1 + 10/100)^2 = 1000 x (1.1)^2 = 1000 x 1.21.
- Amount = 1,210.
- CI = 1,210 - 1,000.
Answer: $210
Example 2 Find the amount on $2,000 at 5% per year for 3 years, compounded annually.
- Amount = 2000 x (1.05)^3.
- (1.05)^3 = 1.157625.
- Amount = 2000 x 1.157625.
Answer: $2,315.25
Example 3 Compare SI and CI on $5,000 at 10% for 2 years.
- SI = (5000x10x2)/100 = 1,000.
- CI: Amount = 5000x(1.1)^2 = 5000x1.21 = 6,050. CI = 6050-5000 = 1,050.
- CI ($1,050) is greater than SI ($1,000).
Answer: SI = $1,000, CI = $1,050
05 Practice Questions
1Find CI on $1,000 at 10% for 1 year.
$100 (same as SI for year 1)
2Find the amount on $1,500 at 20% for 2 years, compounded annually.
$2,160
3Find CI on $2,000 at 10% for 2 years.
$420
4Is CI ever less than SI for the same values (T>1)?
No, CI ≥ SI
5Find the amount on $1,000 at 5% for 2 years.
$1,102.50
📄 Compound Interest — Downloadable Worksheet
10 questions with a full answer key. Grab the PDF to print, or try the interactive version in your browser.