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Find the Compound Interest on Rs. 2000 at 10% per annum for 2 years compounded annually.
Rs. 400
Rs. 420
Rs. 200
Rs. 440
Rs. 420
Compound interest is calculated on the principal amount as well as the accumulated interest of previous periods. For a principal of Rs. 2000 at a 10% annual interest rate over 2 years, the total amount becomes Rs. 2420, resulting in a compound interest of Rs. 420.
Compound interest is calculated on the principal amount as well as the accumulated interest of previous periods. For a principal of Rs. 2000 at a 10% annual interest rate over 2 years, the total amount becomes Rs. 2420, resulting in a compound interest of Rs. 420.
Think of compound interest like a snowball rolling down a hill; as it rolls, it gathers more snow (interest), making it grow larger and faster with each turn.
CI = A - P (Compound Interest is Amount minus Principal)
A=P(1+100RтАЛ)n тАФ Total amount with compound interest
CI=AтИТP тАФ Compound interest formula
The total amount A accrued under compound interest is given by the formula A=P(1+100RтАЛ)n, where P is the principal, R is the rate of interest per annum, and n is the number of years. Subtracting the initial principal P from the total amount A yields the compound interest.
Compound interest grows exponentially over time compared to simple interest.
The interest is added to the principal at the end of each compounding period.
Higher returns on investments over long periods
Higher costs when paying back loans
Bank savings accounts
Loan calculations
Inflation modeling
Principal P=Rs.┬а2000, Rate R=10%, Time n=2┬аyears.
Amount A=2000├Ч(1+10010тАЛ)2=2000├Ч(1.1)2=2000├Ч1.21=Rs.┬а2420.
Compound Interest =2420тИТ2000=Rs.┬а420.
Option A (Rs. 400) represents simple interest for 2 years (2000├Ч0.10├Ч2=400).
B is correct тАФ The compound interest on Rs. 2000 at 10% per annum for 2 years is Rs. 420.
Always distinguish between simple interest (linear growth) and compound interest (exponential growth) when solving quantitative aptitude problems in competitive exams.