In banking, sequences and series are very important for figuring out interests. Let’s break it down simply:
Simple Interest: This is a way to calculate how much interest you earn on an initial amount of money, called the principal. The formula is:
I = P × r × t
Here’s what each letter means:
For example, if you start with £1000 at an interest rate of 5% for 3 years, you would calculate the interest like this:
I = 1000 × 0.05 × 3 = £150.
Compound Interest: This is a bit more complicated because it increases the interest based on the total amount each year. The formula is:
A = P(1 + r)^t
Where:
So, if you have the same £1000 at a 5% interest rate for 3 years, the calculation looks like this:
A = 1000(1 + 0.05)^3 ≈ £1157.63.
This means after 3 years, you would have about £1157.63.
Savings Growth: If you keep adding money regularly, you can use a simple way to see how your savings will grow. For example, if you save £200 each month for 12 months, and you get a 2% annual interest rate, your total savings will add up over time.
By understanding simple and compound interest, as well as how consistent saving helps your money grow, you can better manage your finances!
In banking, sequences and series are very important for figuring out interests. Let’s break it down simply:
Simple Interest: This is a way to calculate how much interest you earn on an initial amount of money, called the principal. The formula is:
I = P × r × t
Here’s what each letter means:
For example, if you start with £1000 at an interest rate of 5% for 3 years, you would calculate the interest like this:
I = 1000 × 0.05 × 3 = £150.
Compound Interest: This is a bit more complicated because it increases the interest based on the total amount each year. The formula is:
A = P(1 + r)^t
Where:
So, if you have the same £1000 at a 5% interest rate for 3 years, the calculation looks like this:
A = 1000(1 + 0.05)^3 ≈ £1157.63.
This means after 3 years, you would have about £1157.63.
Savings Growth: If you keep adding money regularly, you can use a simple way to see how your savings will grow. For example, if you save £200 each month for 12 months, and you get a 2% annual interest rate, your total savings will add up over time.
By understanding simple and compound interest, as well as how consistent saving helps your money grow, you can better manage your finances!