For Maths GCSE Unit 1 Year 11.

1. AER & Compound Interest
[Annual Equivalent Rate]

2. Formulas
Compound Interest
O = Original Amount
i = Interest Rate
n = Number of years.
AER (Annual Equivalent Rate)
n = Number of years.
Jim invests £4000 at 6% pa for 4 years.
What is the total amount after these 4 years?

3. A grade GCSE question
•
Naseem invests £20,000 in an account. For the first two years the account pays 4%
per annum compound interest, and for the next 3 years the account pays 6% per
annum compound interest.
a) Work out the value of the account after 5 years.
20,000 x (1 x 1.04)^2 = 21,632
21,632 x (1 x 1.06)^3 = 25764.05811 (£25,764)
b) Work out the annual equivalent rate to 4 s.f.