COMPUTATION OF COMPOUND INTEREST
In this section, we shall discuss some examples to explain the meaning and the computation of compound interest.
Type 1 COMPUTATION OF COMPOUND INTEREST WHEN INTEREST IS COMPOUNDED ANNUALLY
Example 1 Find the compound interest on Rs 1000 for two years at 4% per annum.
Solution : – Principal for the first year Rs 1000
Interest for the first year = Rs [1000*4*1/100 ] [using: Interest= P*R*T/100 ]
=Rs40
Amount at the end of first year = Rs 1000 + Rs 40 = Rs 1040
Interest for the second year = Rs (1040*4*1/100)
= Rs 41.60
Principal for the second year = Rs 1040
Amount at the end of second year = Rs 1040 + Rs 41.60 = Rs 1081.60
Compound interest = Rs(1081.60-1000) = Rs 81.60
The compound interest can also be computed by adding the interest for each year.