Sabrinatariq99
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You have a choice of two saving schemes. One pays 4% simple interest annually, and one pays 4%compoundinterest annually. You invest £3,500 for 3 years. By showing all your working, explain which type of interest will give you the best return for your money.
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Y1_UniMaths
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Do you know the difference between simple and compound interest?
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laurawatt
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(Original post by Sabrinatariq99)
You have a choice of two saving schemes. One pays 4% simple interest annually, and one pays 4%compoundinterest annually. You invest £3,500 for 3 years. By showing all your working, explain which type of interest will give you the best return for your money.
What have you got so far?
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Sabrinatariq99
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(Original post by laurawatt)
What have you got so far?
Nothing, since I don't have any type of interest in my country, I do not know how to work it out. I am also homeschooled, and can't find any good explanation online between the differences between compound and simple interest.
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laurawatt
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(Original post by Sabrinatariq99)
Nothing, since I don't have any type of interest in my country, I do not know how to work it out. I am also homeschooled, and can't find any good explanation online between the differences between compound and simple interest.
Here are the notes I made in my maths book for interest - hopfully this helps?
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Sabrinatariq99
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(Original post by laurawatt)
Here are the notes I made in my maths book for interest - hopfully this helps?
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Thank you, this was kind of helpful. it also taught me about how to work out that kind of question. Nice handwriting!
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laurawatt
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(Original post by Sabrinatariq99)
Thank you, this was kind of helpful. it also taught me about how to work out that kind of question. Nice handwriting!
Awesome :gah:
Do you have the answer to your original question then?
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Sabrinatariq99
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(Original post by laurawatt)
Awesome :gah:
Do you have the answer to your original question then?
no, not yet.
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laurawatt
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(Original post by Sabrinatariq99)
no, not yet.
In my worked example, try substituting your numbers in. The questions are pretty similar anyway
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laurawatt
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Work out the simple interest, them the compound interest and then see which gives you more money
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Sabrinatariq99
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(Original post by laurawatt)
Work out the simple interest, them the compound interest and then see which gives you more money
ok, thanks it worked
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n.ehal
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so for simple interest:
Interest = Initial amount x Rate/100 x Length of time
£3500 x 0.04 x 3 = 420
so Total amount after interest = £3920

compound interest:
Total amount after interest = Initial Amount (1 + Rate/100)^Length of time
£3500 (1.04)^3 = £3937.02

Hence, compound interest will give you the best return for your money.
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Sabrinatariq99
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(Original post by Sabrinatariq99)
ok, thanks it worked
However, will the higher or lower amount of money give me the best return for money?
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Prasiortle
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(Original post by Sabrinatariq99)
However, will the higher or lower amount of money give me the best return for money?
"Best return for your money" = Higher amount, since getting more money is considered to be better under a capitalist system.
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Sabrinatariq99
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(Original post by Prasiortle)
"Best return for your money" = Higher amount, since getting more money is considered to be better under a capitalist system.
ok thanks
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Jackbob4684
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Anyone know how to do this:
Sam wants to buy a motorbike that costs £5,000. He can pay the entire amount now or choose a payment plan that consists of paying £2,000 now and £3,500 after 1 year. What is the implied yearly interest rate for the payment plan?
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fineapple100
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(Original post by Jackbob4684)
Anyone know how to do this:
Sam wants to buy a motorbike that costs £5,000. He can pay the entire amount now or choose a payment plan that consists of paying £2,000 now and £3,500 after 1 year. What is the implied yearly interest rate for the payment plan?
yep, so the initial price of the motorbike is £5,000. over the payment plan, he will pay a total of 2,000+3,500 =£5,500. Obviously, they aren't the same, and the difference is interest paid over the year. £5,500 - £5,000 is £500. Find 500 as a percentage of the initial price (£5000) and you have your yearly interest rate.

hope this helped x
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old_engineer
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(Original post by fineapple100)
yep, so the initial price of the motorbike is £5,000. over the payment plan, he will pay a total of 2,000+3,500 =£5,500. Obviously, they aren't the same, and the difference is interest paid over the year. £5,500 - £5,000 is £500. Find 500 as a percentage of the initial price (£5000) and you have your yearly interest rate.

hope this helped x
I don’t think this is right, as you would not normally expect to pay interest on the amount paid up-front, £2,000 in this case. So the situation boils down to the payment of £500 interest on a loan of £3,000 for one year.
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Jackbob4684
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(Original post by fineapple100)
yep, so the initial price of the motorbike is £5,000. over the payment plan, he will pay a total of 2,000+3,500 =£5,500. Obviously, they aren't the same, and the difference is interest paid over the year. £5,500 - £5,000 is £500. Find 500 as a percentage of the initial price (£5000) and you have your yearly interest rate.

hope this helped x
Thanks for the help but do you know how to find the monthly interest rate?
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Jackbob4684
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(Original post by old_engineer)
I don’t think this is right, as you would not normally expect to pay interest on the amount paid up-front, £2,000 in this case. So the situation boils down to the payment of £500 interest on a loan of £3,000 for one year.
Thanks for the help but do you know how to find the monthly interest rate?
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