Compound Interest - JSS3 Mathematics Lesson Note

Compound interest is interest calculated on the initial principal, which also includes all the accumulated interest from previous periods. The formula for compound interest is:

𝐴=𝑃(1+𝑟/𝑛)𝑛𝑡

Where:

𝐴 is the amount of money accumulated after n years, including interest.

𝑃 is the principal amount (the initial amount of money).

𝑟 is the annual interest rate (decimal).

𝑛 is the number of times interest is compounded per year.

𝑡 is the time the money is invested for in years.

Example: Calculate the compound interest for a principal amount of $1000, at an annual interest rate of 5%, compounded annually for 3 years.

𝑃=1000

𝑟=0.05

𝑛=1

𝑡=3

𝐴=1000(1+0.05/1)1×3

 =1000(1+0.05) 3

=1000(1.05)3

=1000(1.05) 

=1000×1.157625

=1157.63

So, the amount after 3 years is $1157.63, and the compound interest earned is 1157.63−1000=157.63 dollars.