Interest on Interest: Year by Year
Watch how the principal changes every year in compound interest.
Equation
y = 2000*(1+5/100)^x
Graph
Table
| x | y |
|---|---|
| 0 | 2000 |
| 1 | 2100 |
| 2 | 2205 |
| 3 | 2315.25 |
| 4 | 2431.01 |
| 5 | 2552.56 |
What this lesson covers
What you do
You shape the function y = p*(1+r/100)^x and watch the graph answer.
Challenges to clear
- Set p = 1000: at Year 0 the amount is exactly the principal, 1000.
- With p = 1000 and r = 10: Year 2 shows 1210 — interest earned interest.
- A bigger deposit this time. Set the principal p to 2000 — at Year 0 the amount is the principal itself.
- Now find the rate: slide r until Year 2 reads 2205. Year 1's interest earned interest of its own.
Check yourself
Why is the interest earned in Year 2 higher than in Year 1?
- Because the Principal for Year 2 includes the interest from Year 1. — correct
- Because the interest rate increased in the second year.
- Because banks charge more fees in later years.
- Because simple interest applies to the first year only.
Think about it
- Set p = 1000 and r = 10. What should the table show at Year 0 and at Year 2?