Question

The compound interest on Z 5000 at 8% per annum for 2 years, compounded annually, is 

A. Rs. 800 

B. Rs. 825 

C. Rs. 832 

D. Rs.850

Answer 1

Present value, P = Rs.5000 

Interest rate, R = 8% per annum 

Time, n = 2 years 

∴ Amount (A) = P (1 + R/100)ⁿ [Where, P = Present value 

R = Annual interest rate 

n = Time in years] 

∴ A = 5000 (1 + 8/100)² 

⇒ A = 5000 (1 + 2/25)² 

⇒ A = 5000 (27/25)² 

⇒ A = 5000 × 27/25 × 27/25 

⇒ A = 200 × 27 × 27/25 

⇒ A = 8 × 27 × 27 

⇒ A = 5832 

∴ Amount = Rs.5832 

∴ Compound interest = Rs.(5832 – 5000) [∵CI = A – P] 

= Rs.832