What you need to know

Things to remember:

• You need to pay attention to how long an investment is and how often interest is gained or paid.
• Knowing how to find basic percentages will help.

Let’s look at some key vocabulary:

Interest refers to how much money you gain or pay based on a principal amount of money.

Principal amount refers to how much money is involved to start with.

Simple interest stays the same, the amount going up or down by the same amount each time.

We also need to remember how we find some of our basic percentage amounts.

Percentage                 Division

100%                           $\div1$

50%                             $\div2$

25%                             $\div4$

20%                             $\div5$

10%                             $\div10$

5%                               $\div20$

4%                               $\div25$

2%                               $\div50$

1%                               $\div100$

You invest £2500 with a company who tell you that you will gain 2% interest every year for 7 years. How much money is your investment worth at the end?

We will look at this in 3 steps.

Step 1: Find how much your investment changes by each year.

Percentage                 Division

2%                               $\div50$

$$\pounds2500 \div 50=\pounds50$$

Step 2: Multiply the amount found in Step 1 by how long the investment is.

$$\pounds50\times5=\pounds250$$

Step 3: Add the value in Step 2 to the original amount.

$$\pounds2500+\pounds250=\pounds2750$$

You borrow £200 and pay back 4% every month. How much will you have left to pay after 6 months?

Step 1: Find how much your investment changes by each month.

Percentage                 Division

4%                               $\div25$

$$\pounds200 \div 25=\pounds8$$

Step 2: Multiply the amount found in Step 1 by how long you have been paying back for.

$$\pounds8\times6=\pounds48$$

Step 3: Subtract the value in Step 2 from the original amount.

$$\pounds200-\pounds48=\pounds152$$

Example Questions

Question 1: You invest £300 and receive 10% a month interest. How much will your investment be worth after 7 months?

Step 1: Find how much your investment changes by each year.

Percentage                 Division

10%                             $\div10$

$$\pounds300 \div 10=\pounds30$$

Step 2: Multiply the amount found in Step 1 by how long the investment is.

$$\pounds30\times7=\pounds210$$

Step 3: Add the value in Step 2 to the original amount.

$$\pounds300+\pounds210=\pounds510$$

Question 2: You borrow £870 and pay back 20% every month. How much will you have left to pay after 3 months?

Step 1: Find how much your investment changes by each month.

Percentage                 Division

20%                             $\div5$

$$\pounds870 \div 5=\pounds174$$

Step 2: Multiply the amount found in Step 1 by how long you have been paying back for.

$$\pounds174\times3=\pounds522$$

Step 3: Subtract the value in Step 2 from the original amount.

$$\pounds870-\pounds522=\pounds348$$