Find the CI on Rs. 25,000 for two years at 8% per annum compounded annually.
Answers
Solution!!
The concept of compound interest has to be used here. The principal, rate of interest and time is given in the question. According to the question, we are asked to find the compound interest.
There are two methods of finding the compound interest. We can use the formula or we can calculate it without the formula.
With formula:-
Principal = Rs 25000
Rate of interest = 8%
Time = 2 years
Amount = P(1 + (R/100))ⁿ
Amount = 25000(1 + (8/100))²
Amount = 25000(108/100)²
Amount = 25000(27/25)²
Amount = 25000 × (729/625)
Amount = 40 × 729
Amount = Rs 29160
CI = Amount - Principal
CI = Rs 29160 - Rs 25000
CI = Rs 4160
Without formula:-
First year:-
Principal = Rs 25000
Rate of interest = 8%
Time = 1 year
SI = (P × R × T)/100
SI = (25000 × 8 × 1)/100
SI = Rs 2000
Amount = Principal + SI
Amount = Rs 25000 + Rs 2000
Amount = Rs 27000
Second year:-
The amount in the first year becomes the principal in the second year.
Principal = Rs 27000
Rate of interest = 8%
Time = 1 year
SI = (P × R × T)/100
SI = (27000 × 8 × 1)/100
SI = Rs 2160
Amount = Principal + SI
Amount = Rs 27000 + Rs 2160
Amount = Rs 29160
CI = Amount in second year - Principal in first year
CI = Rs 29160 - Rs 25000
CI = Rs 4160
Abbreviations used:-
P → Principal
R → Rate of interest
T and n → Time
SI → Simple interest
CI → Compound interest