Compound Interest

Amount invested = £1000 Interest Rate = 5%

Method 1
Interest at end of Year 1 = 5% of £1000

= 0.05 x£1000 = £50

Amount at end of Year 1 = £1050

Interest at end of Year 2 = 5% of £1050

= 0.05 x£1050 = £52.50

Amount at end of Year 2 = £1050 + £52.50

= £1102.50
and so on
 Compound Interest
Amount invested = £1000 Interest Rate = 5%

Method 2
Amount at end of Year 1 = 105% of £1000

= 1.05 x£1000 = £1050

Amount at end of Year 2 = 1.05 x£1050 = £1102.50

and so on
Example – Compound Interest

£1000 invested at 5% interest

End of Year n Amount A(£)

0 1000.00
1 1050.00
2 1102.50
3 1157.63
4
1215.51
5 1276.28
 Compound Interest
Amount invested = £1000 Interest Rate = 5%

Method 3
Amount at end of Year n = 1.05n x£1000

Amount at end of Year 2 = 1.052 x£1000 = £1102.50

Amount at end of Year 10 = 1.0510 x£1000 = £1628.89

 General Formulae

Exponential Growth

y = ka mx k, a and m positive a > 1

Example – Compound Interest

A = 1.05n x£1000 y is A x is n

k = 1000 a = 1.05 m = 1

Can be written in other forms:

A = 1.10250.5n x£1000 k = 1000

a = 1.1025 m = 0.5
Example – Radioactive Decay

Plutonium has a half-life of 24 thousand years

Number of half- Time (000s years) Amount (g)

lives
0 0 1000
24 500
1
48 250
2
72 125
3
96 62.5
4
120 31.25
5
Example – Radioactive Decay of Plutonium

Decay functions

A = 1000 x 0.5n where n = no. of half lives

A = 1000 x 2-n where n = no. of half lives

A = 1000 x 2-t/24 where t = time in thousands of years

A = 1000 x 2-0.0416t where t = time in thousands of years

Exponential Decay

y = ka mx k and a positive a < 1 m positive

a > 1 m negative
 General Shape of Graphs

Exponential Growth Exponential Decay

y y
y  ka mx

k positive
m positive
a>1 k positive
k m negative k y  ka mx
a>1
0 x 0 x