GB-43-05-001 · Simple and compound interest
£6700 is invested for 5 years. Account A pays 6.0% simple interest each year. Account B pays 6.0% compound interest each year. Work out how much more money is in B after 5 years, to the nearest penny.
Financial Maths: Simple vs Compound Interest
Application of related method — Booklet p. 52
Method
1) Simple interest adds a fixed amount each year
2) Compound interest uses Original × ((100 + %)/100)^Time
3) Subtract to compare
Worked Example (GB-43-05-001)
1)
A = £8710.00.
2)
B = 6700 × (1.0600)^5; keep full precision.
3)
£256.11
Ans =
£256.11