Compound Interest and Complex Depreciation Calculations

This page delves deeper into compound interest calculations and presents more complex scenarios for depreciation calculations. It builds upon the concepts introduced in the previous page, offering more advanced examples.

The page starts with an example of calculating compound interest:

Example: Calculate the compound interest earned on £6,000 at 2.8% for 3 years. Solution: (1.028)³ x 6000 = £6,518.24 Interest earned = £6,518.24 - £6,000 = £518.24

This example demonstrates how to calculate compound interest over multiple years, a crucial skill for understanding investment growth.

The page then presents a more complex depreciation scenario:

Example: Jack and Trisha bought a new car for £8,500 in 2009. In the first year, its value depreciated by 20%, in the second year by 15%, and in the third by 10%. Calculate the value of the car at the end of each year.

The solution is broken down year by year:

1. Year 1: 80% of £8,500 = £6,800
2. Year 2: 85% of £6,800 = £5,780
3. Year 3: 90% of £5,780 = £5,202

This example illustrates how to handle varying depreciation rates over multiple years, providing a practical application of depreciation and appreciation examples for investments.

The page concludes with another compound interest example:

Example: Calculate the compound interest earned on £8,000 at 2.2% per annum for 5 years. Solution: (1.022)⁵ x 8000 = £8,919.58 Interest earned = £8,919.58 - £8,000 = £919.58

Highlight: When calculating compound interest, always subtract the original amount from the final amount to determine the interest earned.

These examples reinforce the importance of understanding how to calculate compound interest over multiple years and apply depreciation concepts to real-world financial scenarios.