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Calculate the compound interest on Rs 5000 for 2 years at 10% per annum compounded annually.
Rs 1000
Rs 1050
Rs 1100
Rs 1025
Rs 1050
Compound interest is calculated on the principal amount as well as the accumulated interest of previous periods. For a principal of Rs 5000 at 10% per annum for 2 years, the total amount is Rs 6050, resulting in a compound interest of Rs 1050.
Compound interest is calculated on the principal amount as well as the accumulated interest of previous periods. For a principal of Rs 5000 at 10% per annum for 2 years, the total amount is Rs 6050, resulting in a compound interest of Rs 1050.
Compound interest acts like a rolling snowball, where interest earns more interest as it grows larger over time.
A=P(1+100RтАЛ)n тАФ Total amount with compound interest
CI=AтИТP тАФ Compound interest formula
The total amount after n years under annual compounding is given by the formula A=P(1+100RтАЛ)n. Subtracting the principal P from the total amount A yields the compound interest CI=AтИТP.
Compound interest grows exponentially unlike simple interest.
The interest for the second year is calculated on the amount at the end of the first year.
Yields higher returns on investments over long periods compared to simple interest.
Increases the total debt burden significantly faster when borrowing.
Bank fixed deposits and savings accounts
Loans and mortgages
Principal P=Rs┬а5000, Rate R=10%, Time n=2 years.
Option A (Rs 1000) represents simple interest for 2 years.
B is correct тАФ The compound interest on Rs 5000 for 2 years at 10% per annum is Rs 1050.
Always distinguish between simple interest and compound interest formulas in competitive exams to avoid calculation errors.
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