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**paulb203****Member**- Registered: 2023-02-24
- Posts: 80

I’ve come across questions recently that go something as follows;

Tom invests £2000 for 3 years.

For the first year he gets 3% compound interest...

Then for the next two years he gets x% compound interest. Etc.

I’ve been managing to get the correct answer, but the idea of someone receiving compound interest ‘for the first year’ seems strange to me.

Compound interest by it’s definition seems to me to only make sense if someone receives it for 2 or more years. If they are said to get it for ‘the first year,’ i.e, for 1 year, how does this differ from them getting simple interest for 1 year?

£2000. Compound interest. 3%. 1 year. Savings at the end of 1 year = £2060

£2000. Simple interest. 3%. 1 year. Savings at the end of 1 year = £2060

Is that correct?

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**Jai Ganesh****Administrator**- Registered: 2005-06-28
- Posts: 44,406

Hi paulb203,

If Compound Interest is for 1 year compounded annually and Simple Interest is for 1 year, the two are the equal.

Please see the links for better understanding.

Hope this helps!

It appears to me that if one wants to make progress in mathematics, one should study the masters and not the pupils. - Niels Henrik Abel.

Nothing is better than reading and gaining more and more knowledge - Stephen William Hawking.

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**amnkb****Member**- Registered: 2023-09-19
- Posts: 175

paulb203 wrote:

I’ve come across questions recently that go something as follows;

Tom invests £2000 for 3 years.

For the first year he gets 3% compound interest...

Then for the next two years he gets x% compound interest. Etc.

I’ve been managing to get the correct answer, but the idea of someone receiving compound interest ‘for the first year’ seems strange to me.

Compound interest by it’s definition seems to me to only make sense if someone receives it for 2 or more years. If they are said to get it for ‘the first year,’ i.e, for 1 year, how does this differ from them getting simple interest for 1 year?

£2000. Compound interest. 3%. 1 year. Savings at the end of 1 year = £2060

£2000. Simple interest. 3%. 1 year. Savings at the end of 1 year = £2060Is that correct?

interest doesnt have to compound only once a year

it can be compiounded quarterly/monthly/weekly/daily

then one year of compounded will be more than one year of simple

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**paulb203****Member**- Registered: 2023-02-24
- Posts: 80

Thanks, guys.

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**sologuitar****Member**- Registered: 2022-09-19
- Posts: 467

paulb203 wrote:

I’ve come across questions recently that go something as follows;

Tom invests £2000 for 3 years.

For the first year he gets 3% compound interest...

Then for the next two years he gets x% compound interest. Etc.

I’ve been managing to get the correct answer, but the idea of someone receiving compound interest ‘for the first year’ seems strange to me.

Compound interest by it’s definition seems to me to only make sense if someone receives it for 2 or more years. If they are said to get it for ‘the first year,’ i.e, for 1 year, how does this differ from them getting simple interest for 1 year?

£2000. Compound interest. 3%. 1 year. Savings at the end of 1 year = £2060

£2000. Simple interest. 3%. 1 year. Savings at the end of 1 year = £2060Is that correct?

Interest, simple interest, compound interest are three different worlds. Learn the definition of each one before solving applications in this regard.

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