Understanding Growth and Decay
Think of compound interest as money that earns money on itself - it's like a snowball effect that keeps building up. This concept works for anything that changes value over time, from your savings account earning interest to your laptop depreciating in value.
When something appreciates (increases in value), you add the interest rate to 1. For example, 4% interest becomes 1.04 as a multiplier. When something depreciates (loses value), you subtract from 1 - so 10% depreciation becomes 0.9.
Let's see this in action: Claire has £1000 earning 4% annual interest. After converting 4% to 1.04, we calculate 1.04⁵ = 1.217, then multiply by £1000 to get £1217 after 5 years.
Quick Tip: Always convert percentages to decimals first, then add to 1 for growth or subtract from 1 for decay!
