Question

Roger invests Rs.8000 for 3 years at 5% p.a. compound interest reckoned yearly. Income tax at the rate of 40% on the interest earned is deducted at the end of each year. What is the amount at the end of the third year?

1.

Rs.5624.32

2.

Rs.8749.184

3. Rs.5673.42
4. Rs.8848.172

Answer 1

Correct Answer - Option 2 :

Rs.8749.184

Calculation:

40% of the interest amount is paid as tax.

∴ 60% of the interest amount stays back.

∴ 60% of 5% = 3% p.a.

C.I. = 3 × S.I on principal + 3 × interest on S.I + 1 × interest on interest on interest

⇒ 3 × 240 + 3 × 9.6 + 1 × 0.384

⇒ 720 + 28.8 + 0.384

⇒ 749.184

The amount at the end of 3 years = 8000 + 749.184

⇒ 8749.184 

∴ The amount at the end of the third year is Rs.8749.184.