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Ignition Learning — Activity Sheet

Financial mathematics

Mathematics · Year 9

Name: ______________________Date: ____________

Simple interest is calculated only on the original amount (the principal): Interest = Principal × Rate × Time. Compound interest, used by most savings accounts and loans, is calculated on the growing balance (principal plus previously earned interest), so it grows faster over time. Understanding this helps with real decisions like comparing savings accounts or working out the true cost of a loan.

Example

You invest $1,000 at 5% simple interest for 3 years: Interest = 1000 × 0.05 × 3 = $150, so you'd have $1,150. With compound interest at the same rate, you'd end up with slightly more, since each year's interest also earns interest.

Key terms

Principal:
The original amount of money invested or borrowed.
Simple interest:
Interest calculated only on the original principal.
Compound interest:
Interest calculated on the principal plus previously earned interest.

Questions

  1. 1. Simple interest is calculated on:

    • Only the original principal
    • The principal plus previous interest
    • Nothing at all
    • A random number

  2. 2. The principal is:

    • The original amount invested or borrowed
    • The interest rate
    • The bank's name
    • A type of loan document

  3. 3. You invest $500 at 4% simple interest for 1 year. How much interest is earned?

    • $4
    • $20
    • $40
    • $500

  4. 4. Simple interest formula is Interest =:

    • Principal × Rate × Time
    • Principal + Rate
    • Rate ÷ Time
    • Principal − Rate

  5. 5. Compound interest grows:

    • Faster than simple interest over time
    • Slower than simple interest always
    • Only once, then stops
    • The same as simple interest always

  6. 6. A rate of 5% as a decimal is:

    • 0.05
    • 5.0
    • 0.5
    • 50

  7. 7. You borrow $1,000. Interest is a cost of:

    • Borrowing money
    • Nothing, it's always free
    • Only saving money
    • A type of tax only

  8. 8. You invest $1,000 at 5% simple interest for 3 years. How much interest is earned?

    • $50
    • $100
    • $150
    • $1,150

  9. 9. You invest $2,000 at 3% simple interest for 2 years. What is the total amount after 2 years?

    • $2,060
    • $2,120
    • $2,600
    • $2,006

  10. 10. A loan of $5,000 at 6% simple interest for 1 year costs how much in interest?

    • $30
    • $300
    • $3,000
    • $6

  11. 11. Why might compound interest be better for a saver but worse for a borrower?

    • It grows savings faster, but also grows debt faster
    • It has no real effect either way
    • It only applies to borrowers
    • It only applies to savers

  12. 12. You save $800 at 2.5% simple interest for 4 years. How much interest is earned?

    • $20
    • $40
    • $80
    • $100

  13. 13. Which account would earn you more money over 5 years, assuming the same rate?

    • A compound interest account
    • A simple interest account
    • Both earn identical amounts
    • Neither earns any interest

  14. 14. A $3,000 investment earns $180 simple interest over 2 years. What is the annual interest rate?

    • 2%
    • 3%
    • 6%
    • 9%

  15. 15. You invest $1,500 at 4% simple interest. How many years will it take to earn $300 in interest?

    • 3
    • 4
    • 5
    • 6

  16. 16. A loan of $4,000 at 7.5% simple interest over 3 years results in total repayment of:

    • $4,300
    • $4,900
    • $5,150
    • $4,750

  17. 17. Two accounts both start with $1,000 at 5%: one simple, one compound, over 3 years. Which statement is TRUE?

    • The compound account will have slightly more money at the end
    • They will have exactly the same amount
    • The simple account will have more money
    • Neither account earns any interest

  18. 18. You want to earn $450 in simple interest on a $3,000 investment over 3 years. What annual rate do you need?

    • 3%
    • 4%
    • 5%
    • 6%

  19. 19. A credit card charging 18% annual simple interest on an unpaid $2,000 balance for 6 months would add approximately:

    • $180
    • $360
    • $18
    • $1,800

  20. 20. Why is understanding compound interest particularly important when taking out a long-term loan?

    • The total cost can grow substantially larger than the original amount borrowed over time
    • Compound interest never applies to loans
    • Loans always use simple interest exclusively
    • It has no impact on the total amount owed

  21. 21. A $10,000 investment at 4% simple interest for 5 years earns how much total interest?

    • $400
    • $1,000
    • $2,000
    • $4,000

Answer key (parent copy)

  1. 1. Only the original principal
  2. 2. The original amount invested or borrowed
  3. 3. $20
  4. 4. Principal × Rate × Time
  5. 5. Faster than simple interest over time
  6. 6. 0.05
  7. 7. Borrowing money
  8. 8. $150
  9. 9. $2,120
  10. 10. $300
  11. 11. It grows savings faster, but also grows debt faster
  12. 12. $80
  13. 13. A compound interest account
  14. 14. 3%
  15. 15. 5
  16. 16. $5,150
  17. 17. The compound account will have slightly more money at the end
  18. 18. 5%
  19. 19. $180
  20. 20. The total cost can grow substantially larger than the original amount borrowed over time
  21. 21. $2,000