22.COMPOUND INTEREST
Compound Interest:
Sometimes it so happens that the borrower and the lender agree to
fix up a certain unit of time, say
yearly
or
halfyearly
or
quarterly
to settle the previous
account.
In such cases, the amount after first unit of time becomes the principal for the second
unit,the amount after second unit becomes the principal for the third unit and so on.
After a specified period,
the difference between the amount and the money
borrowed is called
the
Compound
Interest (abbreviated
as
C.I.) for that period.
IMPORTANT FACTS AND FORMULAE
Let Principal = P, Rate = R% per annum, Time = n years.
I. When interest is compound Annually:
Amount = P(1+R/100)
n
II. When interest is compounded Halfyearly:
Amount = P[1+(R/2)/100]
2n
III. When interest is compounded Quarterly:
Amount = P[ 1+(R/4)/100]
4n
IV. When interest is compounded AnnuaI1y but time is in fraction, say 3(2/5)
years.
Amount = P(1+R/100)
3
x (1+(2R/5)/100)
V. When Rates are different for different years, say Rl%, R2%, R3% for 1st,
2nd
and
3rd
year
respectively.
Then, Amount = P(1+R
1
/100)(1+R
2
/100)(1+R
3
/100)
VI. Present worth of Rs.x due
n
years hence is given by :
Present Worth = x/(1+(R/100))
n
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View Full DocumentSOLVED EXAMPLES
Ex.1.
Find compound interest
on
Rs. 7500
at 4%
per
annum
for
2
years, compounded
annually.
Sol.
Amount = Rs [7500*(1+(4/100)
2
] = Rs (7500 * (26/25) * (26/25)
)
= Rs. 8112.
therefore, C.I. = Rs. (8112  7500) = Rs. 612.
Ex. 2.
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 Spring '11
 vinh
 Rs., Sol. Principal

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