It is given that the amount of a loan is 1000 times its interest rate, which is compounded annually. If after two years, the
amount increased by 21 %, then calculate the rate of interest and the loan amount.
Answers
Answer:
Simply put, when interest is added to the principal amount of an investment, loan or deposit, it is known as compound interest. It is called so because the accumulated interest is added to the principal amount and the interest for the upcoming period is calculated on the new amount, which is the principal amount plus the amount of the accumulated interest over the prior period. This process is repeated throughout the investment’s tenure. So basically, the interest is calculated on the compounding of the principal amount and the interest generated previously. The power of compounding lies in the fact that it essentially increases the investment amount every year by factoring in the interest amount generated earlier, thus, giving it a definite edge over simple interest.
Step-by-step explanation:
Simply put, when interest is added to the principal amount of an investment, loan or deposit, it is known as compound interest. It is called so because the accumulated interest is added to the principal amount and the interest for the upcoming period is calculated on the new amount, which is the principal amount plus the amount of the accumulated interest over the prior period. This process is repeated throughout the investment’s tenure. So basically, the interest is calculated on the compounding of the principal amount and the interest generated previously. The power of compounding lies in the fact that it essentially increases the investment amount every year by factoring in the interest amount generated earlier, thus, giving it a definite edge over simple interest.