$2000 deposited in an account for 2years compounded at the rate of 5%. At the end of 2years they were withdrawn & deposited in another bank for 1 year at the rate of 3% compounded every 4months. Calculate the amount after the third year.
a. $2000
b. $2365
c. $2266
d. $2416
Answers
Answer:
Compound Interest Formula
Understanding the concept of compound interest, its formula, and how it is calculated is useful because it is the basis of how interest is calculated for your stock market investments, fixed deposits, recurring deposits, etc. It can help you determine how much your return on investment will be, thereby helping you to plan your savings even better. Retail loans such as home loans and vehicle loans also use the compound interest formula so understanding this will give you a better picture of how much interest you will be paying over the years. Here's an example of how it grows year by year:
Year 1 - You earn interest on your Principal amount.
Year 2 - You earn interest on the amount which is the Principal + Interest of Year 1.
Year 3 - You earn interest on the amount which is the Principal + Interest of Year 1 + Interest of Year 2.
Types of Compound Interest
There are generally two types of compound interest used.
Periodic Compounding - Under this method, the interest rate is applied at intervals and generated. This interest is added to the principal. Periods here would mean annually, bi-annually, monthly, or weekly