Question

What will be the interest earned on Rs. 10,000 invested for 2 years at the rate of 7% per annum which is compounded annually?
1. Rs. 3,419
2. Rs. 1,449
3. Rs. 4,149
4. Rs. 2,419

Answer 1

Correct Answer - Option 2 : Rs. 1,449

Given:

Principal = Rs. 10,000

Time = 2 years

Rate per cent = 7%

Concept Used:

If after a certain period of time, interest is calculated on interest as well as on principal,

then such interest is called Compound Interest and is denoted by CI.

Formula Used:

A = P{1 + (r/100)}ⁿ

& CI = P[{1 + (r/100)}ⁿ - 1]

or CI = A - P

where, 

A = Amount, 

P = Principal, 

r = Rate of Interest, 

n = Number of years,

and CI = Compound Interest

Calculation:

According to the question,

A = P{1 + (r/100)}ⁿ

⇒ 10,000 × {1 + (7/100)}²

⇒ 10,000 × (107/100)²

⇒ 10,000 × (107/100) × (107/100)

⇒ 107 × 107

⇒ 11,449

So, Compound Interest = A - P

⇒ 11,449 - 10,000

⇒ 1,449

∴ The interest earned is Rs. 1,449.