Limits of Interest

Extract

Interest rates are playing a large role in many people’s lives these days. The creation of a property owning democracy is part of the reason; another lies in their rapid increase. Yet in spite of this phenomenon the actual method of calculation of interest is almost wholly ignored by the mass of the population, and the fluctuations in the rate are looked upon in qualitative terms. In fact the formula for simple interest is easy to write down and, from this, compound interest can be deduced in a straight-forward fashion. That is, provided you remember what compound interest is. I am short enough of breath to have been at Grammar School when O-level Mathematics was divided into three parts, Arithmetic Algebra and Geometry; and the most boring of these was Arithmetic. So boring indeed thatcompound interest, stocks and shares and other useful tricks were retained until the examination and then promptly forgotten.