Watch Money Compound Year by Year
Each year's interest is computed on the previous year's amount, not the original principal.
Equation
y = 1000*(1+5/100)^x
Graph
Table
| x | y |
|---|---|
| 0 | 1000 |
| 1 | 1050 |
| 2 | 1102.5 |
| 3 | 1157.63 |
| 4 | 1215.51 |
What this lesson covers
What you do
You shape the function y = 1000*(1+r/100)^x and watch the graph answer.
Challenges to clear
- Set the interest rate r to 10%. Look at the table row where x=2 (2 years). The value y should be 1210.
- Year 4 shows 1464.10 — each year's interest is computed on the PREVIOUS year's amount.
- Now YOU choose the principal too. Slide P to 2000.
- Then slide the rate until Year 2 shows 2645 — a steeper 15%, compounding on itself.
Check yourself
Why does CI grow faster than SI year over year?
- Each year the interest is computed on the new (larger) amount, not the original principal — correct
- Because the rate increases each year
- Because CI uses a higher rate
- Because banks add a yearly bonus
Think about it
- Year 1 at 10% gives 1100. Year 2 charges interest on 1100, not 1000. What does year 2 show?