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return of capital and interest

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › return of capital and interest

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by MikeLittle.
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  • March 14, 2017 at 7:12 pm #378219
    laureennora
    Member
    • Topics: 5
    • Replies: 6
    • ☆

    Kindly I need some help on the following… I struggle to figure out how the following return of capital and interest is being calculated:

    Examples:

    Simple interest: £10,000 @ 5% for 3 years.
    Year 1: £500 (£10,000 x 5%)
    Year 2: £500 (£10,000 x 5%)
    Year 3: £500 (£10,000 x 5%), in year 3. Return of capital and interest = £11,500

    Compound interest: £10,000 @ 5% for 3 years compound.
    Year 1: £500 (£10,000 x 5%)
    Year 2: £525 ((£10,000 + £500) x 5%)
    Year 3: £551.25 ((£10,000 + £500 + £525) x 5%) in year 3 return of capital and interest = £11,576.25

    These are the answers I got from one of my resources. However, it’s not quite clear to me where the final figures £11,500 and £11,576.25 came from? How are they calculated?

    Please note, I am a beginner, thanks for your help in advance

    March 14, 2017 at 10:44 pm #378270
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    $11,500 is the aggregate amount of $10,000 plus the three years interest at $500 each year … so $10,000 + (3 x $500) = $11,500

    $11,576.25 is the aggregate amount of $10,000 plus the three years interest as calculated by you … so $10,000 + $500 + $525 + $551.25 = $11,576.25

    Better?

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