Examples of Compound Interest

Example 01:
Find the compound amount and compound interest on the principal 20,000 borrowed at 6% compounded annually for 3 years.
Solution:
Let P = 20000, r = 6%, n = 3
using formula
{\text{A}} = {\text{P}}{\left( {1 +  {\text{r}}} \right)^n} = 20000{\left( {1 + .06} \right)^3} = 23820.32
Compound interest   = 23820.32 - 20000\,\,\,\,\, = 3820.32

Example 02:
Find the compound amount, which would be obtained from an interest of Rs.2000 at 6% compounded quarterly for 5 years.
Solution:
Let Principal = 2000, r = 6\%   = \frac{6}{{4 \times 100}} = .015, n = 5 \times 4\,\,\,\,\, =  20\,{\text{quarters}}

\therefore {\text{A}} = {\text{P}}{\left(  {1 + {\text{r}}} \right)^n}\,\,\,\,\,\, = 2000{\left( {1 + .015}  \right)^{20}}\,\,\,\,\,\, = 2693.71

Example 03:
Find compound interest on Rs.2500 invested at 6% per annually, compound semi-annually for 8 years.
Solution:
Let Principal = 2500, r = 6\%   = 0.06\,\,\,\,\frac{6}{{16}} = 0.03, n = 8  \times 2 = 16
We know that
{\text{A}} = {\text{P}}{\left( {1 +  {\text{r}}} \right)^n} = {\text{2500}}{\left( {1 + .03} \right)^{16}} = 4011.73

Compound interest  =  4011.73 - 2500 = 1511.73

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