Question

manoj deposited a sum of rs.64000 in a post office for 3 years compounded annually at 7% per annum .what amount will he get on maturity?​

Answer 1

Answer:

This is a standard question in text books and the answer can be sought by quick google search but still i will try to explain

In questions like these first lets assume the Amount is expressed as Pi where i denotes the amount after ith year. So after the first year it’ll be P1 and the second year it’ll be P2 etc. Lets say the Initial amount is P0 and the annual interest rate is r .

Hence after the first year the amount P1 is

P1=P0(1+r)

after the second year it’ll be

P2=P1(1+r)

third year

P3=P2(1+r)

or P3 in terms of P0 is

P3=P2(1+r)=P1(1+r)(1+r)=P0(1+r)(1+r)(1+r)

or

P3=P03(1+r)3

and Voila! put values for P0=64000,r=0.075 and there you go. Simple isn’t it?

P.S. The above can be generalized to n number of years as

Pn=P0(1+r)n

and carrying this forward will eventually introduce exponential function, the great e .