Is the compound interest formula on the Edexcel formula sheet?

Yes. The Exam Aid inserted into every 1MA1 paper for the 2025, 2026 and 2027 assessment windows prints it as P(1 + (r)/(100))^n, the total accrued on a principal P. Revision guides written before 2022 say it must be memorised, because back then no sheet existed. The sheet will not tell you what n is in a particular question, and that is where the marks sit.

What is the difference between simple and compound interest?

Simple interest is worked out on the original amount every year, so £4000 at 4 percent pays £160 a year for as long as the money sits there. Compound interest is worked out on the running balance, so the amount added grows each year. Over 3 years £4000 at 4 percent simple gives £4480 while £4000 at 3.8 percent compound gives £4473.55, which is why two accounts cannot be judged by comparing their rates alone.

How many marks is compound interest worth on Edexcel Higher?

A straight value-after-n-years question is 2 or 3 marks. The Higher versions run to 4 or 5: finding the rate from a start and an end value, working out how many complete years something takes, or comparing two accounts and saying which is better. Most of those are method marks for the multiplier and the power, awarded even if the final figure is wrong.

How do you find the number of years in a compound interest question?

At GCSE you try whole numbers of years rather than using logarithms. Work out the value for a sensible n, then step up or down until you cross the target, and show the last value on one side and the first value on the other. The answer is a whole number of complete years, so a decimal such as 5.8 earns nothing even though it is what the algebra produces.

Compound Interest and Depreciation - Edexcel GCSE Higher Maths

Typically 3-5 marks per paper, usually one question with two or three parts · Spec 1MA1

Compound interest works each year's interest out on the balance you have now, not on the amount you started with. Depreciation is the same arithmetic pointing downwards: a van, a laptop or a car losing a fixed percentage of its current value every year. Both sit at spec reference R16 on Edexcel's 1MA1 specification, which is common content, so a Foundation candidate meets the same multiplier method. What changes at Higher tier is that the question rarely stops at the value after three years.

Edexcel gives you the formula. The Exam Aid inserted into every 1MA1 paper for the 2025, 2026 and 2027 windows prints it as $P(1 + \frac{r}{100})^{n}$ , with $P$ the principal, $r$ the rate over a period and $n$ the number of times the interest is compounded. Read that last phrase rather than skimming it: $n$ counts compounding periods, so an account paying 0.4 percent a month for a year has $n = 12$ , not $n = 1$ . Because the formula is printed, none of the marks are for recalling it. They are for choosing the multiplier and choosing $n$ . The topic sits mainly on Papers 2 and 3, where a calculator is allowed; Paper 1 versions use tidy percentages over two years so the arithmetic can be done by hand.

The Higher versions work backwards or compare. Given a start value and an end value you are asked for the rate; given a rate and a target you are asked for the number of complete years; two accounts are set against each other and you have to say which pays more and by how much. Method marks go for a correct multiplier and a correct power, so write $27500 \times 0.84^{6}$ on the page before you press equals, because an examiner can credit that line even when the final figure is wrong. Money answers need two decimal places, and a number-of-years answer needs a whole number with the values either side of the target shown.

Worked example

A delivery van cost £27,500 when it was new. The value of the van depreciates by 16% each year. Work out the number of complete years it takes for the value of the van to fall below £10,000.

[4 marks]

A fall of 16% leaves 84% of the value, so the multiplier for one year is $0.84$ and the value after $n$ years is $27500 \times 0.84^{n}$ .
M1: correct multiplier 0.84, taking 16 from 100 rather than reaching for 0.16
Try $n = 5$ : $27500 \times 0.84^{5} = 11500.83$ , which is still above £10,000.
M1: the value evaluated for at least one whole number of years
Try $n = 6$ : $27500 \times 0.84^{6} = 9660.70$ , which is below £10,000.
M1: the first value under the target, so both sides of the boundary are on the page
The value first drops below £10,000 during the sixth year, so the answer is 6 years.
A1: a whole number of complete years; the algebra gives 5.8, and 5.8 scores nothing here

Practice questions

These are original questions in Edexcel 1MA1 Higher style, running from a single multiplier up to finding a rate from two values and setting two accounts against each other. Use a calculator: the questions asking for a rate, or for a number of complete years, are written for the power key rather than for repeated multiplication by hand. Where a stem says correct to the nearest penny, type the rounded figure, so 6676.72 rather than 6676.721875.

No account needed: the questions below are always free to check, plus 8 extra questions today. Your score so far updates as you go.

Question 1 Warm-up [2 marks]

A car is bought for £14,000. Its value depreciates by 20% each year. Work out the value of the car at the end of 2 years.

Your answer (fractions like 1/2 are fine)
Question 2 Exam pace [3 marks]

An amount of money is invested for 3 years in an account paying 2% per annum compound interest. At the end of the 3 years the account holds £5306.04. Work out the amount of money that was invested.

Your answer (fractions like 1/2 are fine)
Question 3 Exam pace [3 marks]

A car cost £22,000 when new. Its value depreciates by 15% each year. Work out the number of complete years it takes for the value of the car to fall below £10,000.

Your answer (fractions like 1/2 are fine)
Question 4 Exam pace [3 marks]

Tamsin invested £12,500 for 3 years in an account paying 3% per annum compound interest. Work out the total interest she earned. Give your answer correct to the nearest penny.

Your answer (fractions like 1/2 are fine)
Question 5 Stretch [4 marks]

Two banks each offer an account for a £2000 investment held for 3 years. Bank A pays 4% compound interest for the first year and 1.5% compound interest for each extra year. Bank B pays 2.5% compound interest every year. Work out how much more the better account is worth at the end of the 3 years. Give your answer correct to the nearest penny.

Your answer (fractions like 1/2 are fine)
Question 6 Stretch [4 marks]

An account adds interest at the end of every month at a rate of 0.5% per month. Work out the percentage by which an amount left in the account for a whole year increases. Give your answer correct to 2 decimal places.

Your answer (fractions like 1/2 are fine)

Common mistakes examiners see

Treating a compound question as simple interest. £6200 at 2.5% for 3 years becomes $6200 + 3 \times 155 = 6665$ instead of £6676.72, so the answer is £11.72 short and the accuracy mark goes.

Find the word compound in the stem, then write the multiplier and the power on the next line before anything else. Simple interest adds the same figure every year; compound interest is a repeated multiplication.
Building the wrong multiplier. A 12% fall gets multiplied by 0.12 or by 1.12, and a 4.5% rise gets multiplied by 1.45 rather than 1.045.

Say the multiplier as a percentage of what is left before you use it: 12% off leaves 88%, so 0.88; a 4.5% rise leaves 104.5%, so 1.045. A rate with a decimal in it needs three figures after the point.
Giving the balance when the question asked for the interest. £3200 at 3.6% for 4 years shows £3686.29 on the calculator, but a question asking for the interest earned wants £486.29.

Read the last line of the question again after you have the balance. If it says interest, subtract the amount invested; if it says value, amount or total, the balance is the answer.
Rounding to the nearest penny at the end of each year and feeding the rounded figure into the next year, or writing a money answer as £5412.2 or £5412.161.

Do the whole thing in one calculation, $5000 \times 1.02^{4}$ , and round only on the answer line. Money is written with two decimal places, so £5412.16.
Answering a number-of-complete-years question with a decimal, or miscounting the years: 1 January 2019 to 1 January 2024 is five years of interest, not four.

Write a whole number, and show the value just before and just after the target so the examiner can see where it crosses. Count years by subtracting the two dates, then sanity check against the first year's value.

Frequently asked questions

Is the compound interest formula on the Edexcel formula sheet?: Yes. The Exam Aid inserted into every 1MA1 paper for the 2025, 2026 and 2027 assessment windows prints it as $P(1 + \frac{r}{100})^{n}$ , the total accrued on a principal $P$ . Revision guides written before 2022 say it must be memorised, because back then no sheet existed. The sheet will not tell you what $n$ is in a particular question, and that is where the marks sit.
What is the difference between simple and compound interest?: Simple interest is worked out on the original amount every year, so £4000 at 4 percent pays £160 a year for as long as the money sits there. Compound interest is worked out on the running balance, so the amount added grows each year. Over 3 years £4000 at 4 percent simple gives £4480 while £4000 at 3.8 percent compound gives £4473.55, which is why two accounts cannot be judged by comparing their rates alone.
How many marks is compound interest worth on Edexcel Higher?: A straight value-after-n-years question is 2 or 3 marks. The Higher versions run to 4 or 5: finding the rate from a start and an end value, working out how many complete years something takes, or comparing two accounts and saying which is better. Most of those are method marks for the multiplier and the power, awarded even if the final figure is wrong.
How do you find the number of years in a compound interest question?: At GCSE you try whole numbers of years rather than using logarithms. Work out the value for a sensible $n$ , then step up or down until you cross the target, and show the last value on one side and the first value on the other. The answer is a whole number of complete years, so a decimal such as 5.8 earns nothing even though it is what the algebra produces.

Compound Interest and Depreciation - Edexcel GCSE Higher Maths

Worked example

Practice questions

Common mistakes examiners see

Frequently asked questions

Related topics