Rahul borrowed some money from Kunal at 5% per annum compound interest. If 2
years later he paid Rs 512.50 as compound interest, what sum did he borrow?
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Step-by-step explanation:
If he paid Rs.512.50 as compound interest, what sum did he borrow?
A formula for calculating annual compound interest is as follows:
S = P(1 + j)^t
where
S = value after t periods
P = principal amount (initial investment)
j = annual nominal interest rate (not reflecting the compounding)
t = number of years the money is borrowed for
S = P(1 + j)^t
S = P(1 + 0.05)^2
I = P(1.05)^2 - P
512.50 = P(1.05^2 - 1^2)
0.1025P = 512.50
P = 5,000
Rahul borrowed Rs. 5,000.
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