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Aruna borrowed a sum of ₹9,000 from Jayshree at 10% per annum on compound interest, compounded annually. Find the total amount paid by Aruna after 2 years to clear all the dues.
₹10,098
₹10,890
₹10,980
₹10,089
₹10,890
For 2 years at 10% compound interest, the effective interest rate is 10+10+10010×10=21%. Thus, Amount = 9000×1.21=10,890.
Principal (P) = ₹9,000, Rate (R) = 10% per annum, Time (n) = 2 years
A=P×(1+100R)n
For 2 years at 10% compound interest, the effective interest rate is 10+10+10010×10=21%. Thus, Amount = 9000×1.21=10,890.
Confusing compound interest with simple interest and calculating only 20% interest instead of compounding the interest for the second year.
Identify Given Values
Note down the principal sum, rate of interest, and time period from the problem statement.
P=9000,R=10%,n=2
Apply Compound Interest Amount Formula
Substitute the values into the standard formula for compound amount: A=P(1+100R)n
A=9000×(1+10010)2
Simplify the Expression
Convert the term inside the parenthesis into a fraction and expand the power for 2 years.
A=9000×1011×1011
Calculate Final Amount
Multiply the remaining terms to find the total amount to be paid after 2 years.
A=90×121=10,890
B is correct because the total amount paid by Aruna after 2 years at 10% compound interest is calculated as ₹10,890.
Successive percentage change formulas or effective rate methods can be used as quick alternatives for 2 or 3-year compound interest calculations without expanding large fractions.