find the intrest earned on £900 investment on compound intertest rate of 6% per annum for 2 years
Answers
Solution!!
The concept of compound interest has to be used here. The principal, rate of interest and time is given. We have to find the compound interest.
We can find it with formula and without formula too.
Principal (P) = £900
Time (n) = 2 years
Rate of interest (R) = 6%
Amount = P(1 + (R/100))²
Here 2 is the time (n).
Amount = 900(1 + (6/100))²
Amount = 900(106/100)²
Amount = 900(53/50)²
Amount = 900 × (53/50) × (53/50)
Amount = 9 × (53/5) × (53/5)
Amount = 25281 ÷ 25
Amount = £1011.24
Compound interest (CI) = Amount - Principal
CI = £1011.24 - £900
CI = £111.24
Now let's do this without the formula.
For 1st year
Principal (P) = £900
Rate of interest (R) = 6%
Time (T) = 1 year
Interest = (P × R × T)/100
Interest = (900 × 6 × 1)/100
Interest = 9 × 6
Interest = £54
Amount = Principal + Interest
Amount = £900 + £54
Amount = £954
For 2nd year
The amount in the 1st year will be the principal in the 2nd year.
Principal (P) = £954
Rate of interest (R) = 6%
Time (T) = 1 year
Interest = (P × R × T)/100
Interest = (954 × 6 × 1)/100
Interest = 5724/100
Interest = £57.24
Amount = Principal + Interest
Amount = £954 + £57.24
Amount = £1011.24
Compound interest (CI) = Interest in the 1st year + Interest in the 2nd year
CI = £54 + £57.24
CI = £111.24