Compound interest is interest paid on an amount and on the interest already received on that amount. You can solve compound interest questions using the formula :

A = P ( 1 + R divided by 100 ) to the power of n

where P is the amount invested initially

R is the rate of interest (percentage per year)

n is the number of years invested

A is the amount in the account at the end of ten years

A building society pays compound interest at a fixed rate of 3.5% per annum. £2000 is invested initially in an account.

What will be the value at the end of 5 years?

After how many whole years will the value of the account first reach £3000?

So is the solution: 2000 (1 + 3.5 divided by 100 ) power of 5 = £2375.37

And 12 years