Compound Interest

Now that we solved some simple interest problem, now lets work on Compound interest. You now know what exactly interest mean, and how it is calculated. Now lets work on calculating compound interest and knowing what it means.

When the interest amount is added to the principle amount it is called as compound interest. This amount is added at the end of every term. Compound interest is always more than the simple interest.

Now lets work on it to understand more. Below i have a few solved problem on compound interest.

Problem No.1:- Find the compound interest if Rs 2000 is lent at 4% p.a for 2 years(the interest is compound annually).

Solution:

Here we see

principle(p)= Rs. 2000,
time (n)= 2 years,
rate of interest(r)= 4%
Compound interest= amount-principle

therefore amount(a)=p*(1+(r/100))n
=200(1+(4+100))2
=200*(104/100)2
=200*(104/100)(104/100)
=Rs. 2163.20

Therefore at the end of the 2nd year the amount is Rs.2163.20
And, the compound interest is Rs.2163.20-2000(principal amount)=163.20(answer)

Friends, i enjoyed solving the problem above, how about you? Now lets solve another problem on the same.

Problem2:-

James deposits $5000 in a bank and he pays the rate of 5% interest per year, compounded and credited annual. Lets find out how much will he have at the end of 4 years?

Solution:-

Here we see

p=$5000, n=4, and r=5/100 or 5%
Compound interest= p(1+0.05)3
= 5000(1+0.05)3
= 6.077.53

Did you like it? If you have any problems to be solved let me know and we will discuss it together and solve it.