Question

At the rate of 5% per annum compounded annually, how long would it take for a
the sum of $ 20000 to compound to $ 22050.

Answer 1

Principal for the first year = Rs. 20,000, rate = 5%, T = 1 year.

Interest for the first year = 20,000×1×5

__________

100

=Rs.1,000 (using simple interest formula I=

100

P×T

1

×R

).

Principal for the second year = Rs. 20,000+1,000=Rs. 21,000.

Interest for the second year =

100

21,000×5

=Rs.1,050

Amount after 2 years = Rs. 21000 + 1050 = Rs. 22,050.

Compound interest = amount - principal = Rs. 22,050 - Rs. 20,000 = Rs. 2,050.

Hence the compound interest after 2 years is Rs. 2,050.

Simple interest on Rs. 20,000 for 2 years at the rate of 5% is

I=

100

20000×2×5

=Rs.2,000.