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INTEREST COMPOUNDED ANNUALY

Example : Ajay borrowed Rs 25000 for 2 years at an interest of 10% compounded
annually. Find the compound Interest and the amount to be paid at the end of two
years.

Solution: Let us denote the principal for the first year by P 1.

Given, P 1 = Rs 25000.
The simple interest for first year will be = 25000 x 10/100 = 2500 Rs
Now, the total amount at the end of first year will be = 25000 + 2500 = Rs 27500
The simple interest for second year will be = 27,500 x 10/100 =Rs 2750
Now, the total amount to be paid at the end of second year will be =

27500+2750 Rs = Rs 30250
Total interest paid = 30250- 25000 Rs = 5 2 50 Rs / 2500+ 2750= 5200

BY USING FORMULA : A=P (1+ ) n

CI=A−P
Where, A is the amount
P is the principal amount
R is the rate of interest
n is the number of years.
The period for which interest is charged are also known as
Conversion period.

Where, P is the principal amount, R is the rate of interest and n is the number of years.
We get the formula for the amount to be paid at the end of n years.
Compound Interest can be calculated using the formula.

Example : Calculate the compound interest for an amount of 10,000 Rs taken at 10%
for 2 years.
Solution: Given, P = 10,000 Rs, R = 10, n = 2.
We know that, A = P (1 + R/100) n
Substituting the values, we get, A = 10,000 x (1 + 10/100) 2
A = 10,000 x 1.21 = 12,100 Rs
Thus, CI = A – P = 12,100 – 10,000 =Rs 2100

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