Calculating Interest

Programme Outline

Katie and Jamie visit a bank’s headquarters to explain how interest works. Katie does a simple interest calculation and Jamie shows how to calculate compound interest, using the same principal and rate to demonstrate how the investment grows more quickly. The difference between the two types of interest is reinforced by a visual demonstration.

We visit the set of ‘Countdown’ as Richard Whiteley is keen to show that it’s not only Carol Vorderman who knows a bit about maths! His top tip is that if you want to calculate the new principle you just multiply the original principle £500 by 1.06 instead of multiplying the original principle by 6% and adding the original amount.

In this week’s ‘Tick or Trash’ Katie and Jamie perform an interest calculation over 2 years. They use contrasting calculation methods and these are highlighted during a discussion of the error that Jamie has made.

Jamie and Katie use a ‘helping hand’ to explain how banks make their money by setting different interest rates for saving and borrowing.

Katie visits the Jubilee Debt Campaign to hear how compound interest rates have led to serious problems for developing countries that cannot meet their repayments. She takes a typical example and demonstrates how to calculate the growth of the debt using a repeated multiplier. We then see how to perform the calculation more efficiently on a calculator using powers.