Compound interest is the total annual interest earned on a principal loaned for a specific time period.
Amount - The amount of money left at the end.
The total compound interest earned is the sum of the initial principal and all compound interest earned.
It is given that
Principal (P) = ₹ 5000
Rate of interest (r) = 6% p.a.
Period (n) = 2 years
We know that
Amount = \mathrm{P}(1+\mathrm{r} / 100)^{\mathrm{n}}
Substituting the values
=5000(1+6 / 100)^{2}
By further calculation
= 5000 × 53/50 × 53/50
= ₹ 5618
Here
CI = A – P
Substituting the values
= 5618 – 5000
= ₹ 618
Q.
Tick the correct answer in each of the following:
A sum of Rs 25000 was given as loan on compound interest for 3 years compounded annually at 5% per annum during the first year, 6% per annum during the second year and 8% per annum during the third year. The compound interest is
(a) Rs 5035 (b) Rs 5051 (c) Rs 5072 (d) Rs 5150
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Solution
The correct option is A ₹ 1655
Principal amount P
=₹5000
Rate of interest R
=10%
Time period T =3 years
We know,
A=p(1+r100)n
Where, A is the amount to be paid after n years
A=5000(1+10100)3
A=5000(1+110)3
A=5000×11103
A=5000×11×11×1110×10×10
A=5×11×11×11
A=₹6655
Compound interest = Amount - Principal amount
Compound interest
=₹6655−₹5000=₹1655