Question

Praveen took the loan from a bank an amount of Rs. 50000 at the rate of 10% then find the difference between the amount following two ways
Half Annually
Half yearly and suggest Praveen which is best

Answer 1

We have four ways of accumulating money given the interest rate.

1) Annually

2) Half yearly

3) Monthly

4) Daily

We will consider annually and semi annually (Half yearly)

1) Annually

The accumulation function for compound interest is :

Amount = P(1 + i)ⁿ

P = principle amount

i = interest rate

n = Time

Doing the substitution we have :

Amount = 50000 × (1.10) = 55000

here out n = 1

2) Half yearly

in this case :

n = 2 × the number of years

that is n = 2 for 1 year.

The interest is divided by two as follows :

10%/2 = 5%

doing the substitution :

Amount = 50000(1.05)² = 55125

We see that he pays 125 more when he pays it half annually he should therefore consider the annual basis.

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