About this video
How compound interest earns 'interest on interest', growing faster than simple interest, using A = P(1 + i)ⁿ.
What it covers
- The compound formula A = P(1 + i)ⁿ
- Why it grows faster than simple interest
- Comparing simple vs compound over time
Extra worked examples
✍️ Extra example: R2000 at 8% compound interest for 3 years
- 1Write the formula: A = P(1 + i)ⁿ.Each year's interest is added on before the next year.
- 2Substitute: A = 2000(1.08)³.i = 0.08, n = 3.
- 3A = 2000 × 1.2597 ≈ R2519.42.That's about R39 more than the simple-interest version — the 'interest on interest'.
Exercises to try
Work each one out, then click to reveal the answer.
- 1R1000 at 10% compound for 2 years — total?
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1000(1.10)² = 1000 × 1.21 = R1210 - 2R5000 at 6% compound for 3 years (round to cents).
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5000(1.06)³ = 5000 × 1.191016 ≈ R5955.08 - 3Which is more after 5 years on R1000 at 10%: simple or compound?
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Compound — it earns interest on previous interest, so it always overtakes simple after year 1.
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