Concept of Compound Interest-05

Question: Find the compound interest on Rs.2000 at 5% per annum, compounded yearly for 2.5 year [Ans. (b)  Rs. 260.125]

(a) Rs.160.12 (b) Rs.260.125 (c) Rs.206.21 (d) Rs.200.21(e) None of these

Solution:

Detailed Explanation: Since interest is compounded annually, so the interest for the first two compounding periods are 5% each, but for the third compounding period it is 2.5% (as the third compounding period is half a year).

Principal is Rs. 2000.

S.I. for the first two years each is Rs.100 (5% of Rs. 2000 = Rs.100); while S.I. for next half year (third year) is Rs.50 (2.5% of Rs.2000 = Rs.50)

Difference for the first compounding period is zero (diff. for the first compounding period is always “0”).

Difference for the second compounding period is Rs.5 (5% of Rs.100 = Rs.5).

Difference for the next half year (third compounding period) = 2.5% of Rs.205 (100+100+5) = Rs.5.125

C.I. for two and half years = Rs.260.125 Ans. (100+100+50+5+5.125)