Interest can be added to an amount of money when it is saved or borrowed. Credit agreements have an amount of interest built in.
Part ofApplications of MathsManaging finance
If money is not left in a bank account for a whole year then only a fraction of the interest gets paid.
Find the interest that Damon earns on \(\pounds40\) if he keeps it in the bank, paying \(8.5\%\) interest per annum, for six months.
Interest for one year \(= 8.5\%\) of \(\pounds40\)
\(= \frac{{8.5}}{{100}} \times 40\)
\(= \pounds3.40\)
Interest for six months \(= \frac{1}{2}\,of\,\pounds3.40\) (Six months is \(\frac{6}{12}\) of a year)
\(= \pounds1.70\)
New balance:
\(= \pounds40 + \pounds1.70\)
\(= \pounds41.70\)
Damon will earn \(\pounds1.70\) in interest.
Eliza has \(\pounds560\). She deposits it in a bank account that pays \(3.7\%\) interest per annum.
She leaves it in the bank for two months.
How much money will Eliza have now?
Interest for one year \(= 3.7\%\) of \(\pounds560\)
\(= \frac{{3.7}}{{100}} \times 560\)
\(= \pounds20.72\)
Interest for two months \(= \frac{1}{6}\) of \(\pounds20.72\) (Two months is \(\frac{2}{12}\) or \(\frac{1}{6}\) of a year)
\(= \pounds3.45\) (rounding down to the nearest pence)
\(= \pounds560 + \pounds3.45\)
\(= \pounds563.45\)
After two months Eliza has \(\pounds563.45\)
