2025
Finance, Growth & Decay (Grade 12 Math)
Andile Mokalane
,1. Simple Interest
Simple interest is a method of calculating interest where the interest is only
applied to the original amount borrowed or invested (the principal).
It does not take into account any interest that has already been earned.
The growth of money under simple interest is linear, meaning it increases at
a steady, constant rate.
This method is mainly used in short-term borrowing and lending
arrangements, such as small personal loans or lay-by agreements.
Formula
Where:
A = accumulated amount (final)
P = principal (initial amount)
i = interest rate per period (decimal form, e.g. 12% = 0.12)
n = number of periods
Example:
Invest R10 000 at 12% simple interest for 3 years:
, 2. Compound Interest
Compound interest is the process where interest is calculated on both the
principal and the accumulated interest from previous periods.
This results in exponential growth, because each period’s interest becomes
part of the balance that earns interest in the next period.
It is the most common form of interest used in bank savings accounts,
mortgages, credit cards, and investments.
Compound interest reflects the idea of “interest on interest,” which explains
why money grows faster than under simple interest.
The frequency of compounding (annually, quarterly, monthly, daily) affects
how quickly the value grows.
Formula:
Example:
Invest R10 000 at 12% compound interest for 3 years (annually):
Compound interest always grows faster than simple interest.
Finance, Growth & Decay (Grade 12 Math)
Andile Mokalane
,1. Simple Interest
Simple interest is a method of calculating interest where the interest is only
applied to the original amount borrowed or invested (the principal).
It does not take into account any interest that has already been earned.
The growth of money under simple interest is linear, meaning it increases at
a steady, constant rate.
This method is mainly used in short-term borrowing and lending
arrangements, such as small personal loans or lay-by agreements.
Formula
Where:
A = accumulated amount (final)
P = principal (initial amount)
i = interest rate per period (decimal form, e.g. 12% = 0.12)
n = number of periods
Example:
Invest R10 000 at 12% simple interest for 3 years:
, 2. Compound Interest
Compound interest is the process where interest is calculated on both the
principal and the accumulated interest from previous periods.
This results in exponential growth, because each period’s interest becomes
part of the balance that earns interest in the next period.
It is the most common form of interest used in bank savings accounts,
mortgages, credit cards, and investments.
Compound interest reflects the idea of “interest on interest,” which explains
why money grows faster than under simple interest.
The frequency of compounding (annually, quarterly, monthly, daily) affects
how quickly the value grows.
Formula:
Example:
Invest R10 000 at 12% compound interest for 3 years (annually):
Compound interest always grows faster than simple interest.
