Examples of Compound Interest

Example 01:

Find the compound amount and compound interest on the principal Rs.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

The compound interest  = 23820.32 - 20000\,\,\,\,\, = 3820.32

Example 02:
Find the compound amount which would be obtained from the 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

The compound interest  = 4011.73 - 2500 = 1511.73