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50
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Difference between the Simple and Compound Interests
£
10,000 is deposited in
a bank, and one
year later,
£ 10,600
is
drawn. Interest
rate,
in this case, is
found
to be
600/1000
=
0.06 or 6%. Then, what
is the interest when deposited
for 2 years. There are
two
methods available for
interest
calculation. One
is simple interest calculation based on the
fact
that the interest of £ 600 for the
first
year
doubles for the second year,
amounting
to
£ 1200. The
other is compound interest calculation based on the idea that
a
deposit at the beginning of the second year is £ 10,600 with interest
of £ 636
(£
10,600 x
0.06)
added
to
make
£ 1236
for
two
years. Compound interest calculation is slightly better in interest rate. For a larger sum of money deposited for
longer
terms,
the difference in
interest rate between
the
two
methods
must be
noticeable. The
following is the
equation
for
determining interest included for the
n
year in each calculation method.
Interest included by simple calculation (n year with
rate R)
B
=
X
(principal)
+
n
•
X
•
R
Interest included
by compound
calculation
(n
year with
rate R)
C
=
X (1
+
R)n
Based on the above
equations,
the following program
is generated to
calculate
interest
included both in
simple and
compound interests.
10 PRINT "PRINCIPAL"
20 INPUT X
30 PRINT "INTEREST RATE
%"
40 INPUT R
50 PRINT "NUMBER OF YEARS"
60 INPUT Y
:
PRINT : PRINT
70 PRINT
"PRINCIPAL =" ; X
80 PRINT "INTEREST RATE ="; R
;
" %
"
90 PRINT
"YEARS" ; TAB
(6) ;
"SIMPLE"
;
100 PRINT TAB (17)
;
"COMPOUND" ;
1 10
PRINT TAB
(30)
; "DIFFERENCE"
120 FOR
A= 1
TOY
130 B
=
X+
A* X
*(R/100)
140 C= INT(10*
X
*
(1 +
R/100)
t
A)/10
150 D
=
C
—
B
160
PRINT
A
;TAB(6)
:B
.
170 PRINT TAB
(15)
;
C ; TAB
(30)
;
D
180 NEXT
A
190 PRINT : PRINT
:
GOTO 10
The following is an example
of program
execution:
PRINCIPAL
=
10000
INTEREST RATE
=
6
%
YEARS SIMPLE
COMPOUND
DIFFERENCE
1
10600
10600
0
2
11200
11236
36
3
11800
11910.1
110.1
4
12400
12624.7
224.7
5
13000
13382.2
382.2
6
13600
14185.1
585.1
7
14200
15036.3
83629999
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