Concept of Compound Interest-03

Question: If the interest is compounded annually, find the compound interest on Rs. 2000 for 3 years at 10% per annum. [Ans. (b) Rs. 662]                                                                                                                                  

(a) Rs. 762 (b) Rs. 662 (c) Rs. 650 (d) Rs. 626 (e) none of these 

Solution:

Detailed explanation: 10% of Rs 2000, that is, Rs 200 is the simple interest for each of the three years. When difference is added to the simple interest, corresponding compound interest is obtained.

Difference for the first year = Rs 0

Difference for the second year = 10% of Rs 200 = Rs 20

Difference for the third year = 10% of Rs 200 + 10% of Rs 200 + 10% of Rs 20 = Rs 20 + Rs 20 + Rs 2 = Rs 62

Therefore, the compound interest for the three years = Rs 600 + Rs 62 = Rs 662 Ans.