Compound

Interest

Mathematics Form 3
Chapter 3.1
What is
COMPOUND INTEREST ??
● Interest that is calculated based on the original
principle and also the accumulated interest from
the previous period of savings.
● Different from simple interest in terms of the
amount of savings to be used for interest
calculation.
● The frequency of compounding on the principal
can be different. For example compounded once
a year or once every 3 months and so on.

Page 02
MV = matured value

P = principle MV
R = interest rate

N = no of periods the interest is compounded per

year

T = term in years

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Formula
 Examples
Encik Samsudin deposits RM5000 in
Bank SM with an interest rate of 2%
per annum and compounded annually.
Calculate the total savings of Encik
Samsudin after he has saved for 2 years.

P = RM5000

R = 2/100 OR 0.02

N = compounded annually ( n = 1 ) MV = 5000 ( 1 + 0.02/1 )^(1)(2)

T = 2 years = 5000 ( 1 + 0.02/1 )^2
= RM 5202

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 Examples
Mrs Raeli deposited RM600 into her
savings account that gives an interest
rate of 5% per annum and compounded
quarterly. How much is Mrs Raeli
savings at the end of the 5th year?

P = RM600

R = 5/100 OR 0.05

N = compounded quarterly ( n = 4 )
MV = 600 ( 1 + 0.05/4 )^(4)(5)

T = 5 years
= 600 ( 1 + 0.05/4 )^20
= RM 769.22

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 Examples
At the beginning of the year, Mr Noah
saves RM11500 in his savings account
with a rate of 5% per annum and
compounded every 6 months. What is
Mr Deon’s total savings at the end of the
fifth year?
P = RM11500

R = 5/100 OR 0.05

N = compounded every 6 months ( n = 2 ) MV = 10000 ( 1 + 0.05/2 )^(2)(5)

T = 5 years = 10000 ( 1 + 0.05/2 )^10

= RM 12800.85

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 Examples
Mr Sietrich deposits RM2910 into his
savings account that gives an interest
rate of 3% per annum and compounded
every month. How much is Mr Sietrich
savings at the end of the 2nd year?

P = RM2910

R = 3/100 OR 0.03

N = compounded every month ( n = 12 ) MV = 2910 ( 1 + 0.03/12 )^(12)(2)

T = 2 years = 2910 ( 1 + 0.03/12 )^24

= RM 3089.71

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 Mr Adam deposited RM 5000 into a fixed deposit account
with 4.5% interest rate compounded every 3 months for a
period of 3 years. Calculate the amount of accumulated
interest after the 3rd year.
MV = 5000 ( 1 + 0.045/4 )^(4)(3)
= 5000 ( 1+ 0.045/4 )^12
= RM 5718.37
Amount of accumulated interest =
RM 5718.37 - RM 5000
= RM 718.37

Questions Page 08
 Mr Heika deposited RM 3000 in a fixed deposit account at
Bank TOC for 2 years with an interest rate of 6% per
annum. How much will Mr Cale earn if he was given
compound interest ( compounded once every 4 months) ?

MV = 3000 ( 1 + 0.06/3 )^(3)(2)

= 3000 ( 1 + 0.06/3 )^6
= RM 3378.49

Questions Page 09
 A bank offers a 5% interest rate per annum for savings in a
fixed deposit account. If Mrs Bea saves RM 7000 at the
beginning of the year, how much money is in her fixed
deposit account at the end of the year if the interest is
compounded :
(a ) every 4 months
MV = 7000 ( 1 + 0.05/3 )^(3)(1)
= 7000 ( 1 + 0.05/3 )^3
= RM 7355.87
(b ) every month
MV = 7000 ( 1 + 0.05/12 )^(12)(1)
= 7000 ( 1+ 0.05/12 )^12
= RM 7358.13

Questions Page 10
 Fahmi deposits RM8000 in a bank as fixed deposit for 3
years at interest rate r% compounded yearly. By the end of
the 3rd year, he received RM8998.91. What is the interest
rate in percentage?
8998.91 = 8000 ( 1 + r/1 )^(1)(3)
8998.91/8000 = ( 1 + r/1 )^3
3√ 1.125 = ( 1 + r/1 )^3
1.04 = 1 + r/1
1.04 - 1 = r/1
0.04 * 1 =r
0.04 =r

Decimal to Percentage = 0.04 * 100

= 4%

Questions Page 11
Thank You
Any questions? Please do ask.

Mathematics Form 3
Chapter 3.1