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 $$ = 4011.73 – 2500 = 1511.73$$