Compound Interest Compounded Annually
Compound Interest Compounded Annually
Definition: Compound interest is calculated as a percentage as a total amount a the end of the previous compounding period.
Formula:
First Type: 
,
where 
= Future Value
= Present Value or Original Amount
= Annual Interest Rate as a Decimal
= multiplier
n = number of years of investment
Illustration: What will Rs 5000 invested at 8% p.a compound interest amount to after 2 years ?
Solution : An interest rate of 8% indicates that i = 0.08.
For 2 years , n = 2 and so = Rs 5000
= Rs 5832
Second Type:
To find interest only, we use
Compound interest = -
Illustration: How much interest is earned according to the above example1 .
Solution : interest earned = $ 5832 - $ 5000 = $ 832
now , To Find Compound Interest (CI) when Interest is Compounded Annually:
In such cases where interest is compounded yearly, the interest accrued during the first year is added to the principal and the amount so obtained becomes the principal for the second year. The amount at the end of the second year becomes the principal for the third year, and so on.
Illustration: Find the compound interest on Rs 25000 for 3 years at 6% per annum, compounded annually.
Solution: Principal for the first year = Rs. 25000.
Amount at the end of the first year = 25000 + 1500 = Rs 26500.
Principal for the second year = Rs. 26500.
Amount at the end of the second year = Rs 26500 + 1590 = Rs 28090.
Principal for the third year = Rs 28090.
Amount at the end of the third year = 28090 + 1685.40 = Rs 29775.40.
Therefore, compound interest = 29775.40 - 25000 = Rs 4775.40.
Compound Interest By Formula:
For the above example:
Principal = 25000
Rate= 6%
time= 3 years
Therefore, compound interest = 29775.40 - 25000 = Rs 4775.40.
A man borrowed Rs. 3125 for CI and it amounted to Rs. 4500 in 2 years. The rate of CI per annum is : | |||
| Right Option : C | |||
| View Explanation | |||
Find the Compound Interest on Rs.8000 at 5% per annum for 3 years when C.I is reckoned yearly? | |||
| Right Option : B | |||
| View Explanation | |||
A sum of Rs. 50,000 is borrowed and the rate of interest is 10% per annum. What is the compound interest for 5 years? | |||
| Right Option : A | |||
| View Explanation | |||
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My experience with Abhyas Academy has been very good. When I was not in Abhyas whenever teacher ask questions I could not speak it confidently but when I came in Abhyas, my speaking skills developed and now I am the first one to give the answer of teachers question.
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