Compound interest is the interest calculated on the previous year’s amount. Is the following statement true or false
Solution:
The statement is true.
The formula for calculating the compound interest is given by:
A = P(1 + r/100)ⁿ
P = Principal; r = rate of interest per annum; n = number of years
Let P = 100; r = 10%
For the first year the interest will be:
A = 100(1 + 10/100)¹
= 100(1 + 0.1)
= 100(1.1)
= 110
The Interest for the first year = 110 - 100 = 10.
The interest for the first determined by using the compound interest formula is the same as simple interest.
To determine the second year’s interest the first year’s interest is added to the previous year’s principal and the new principal is:
P = 100 + 10 = 110
The Second year’s Interest is calculated as follows:
A = 110(1 + 10/100)
= 110(1.1)
= 121
Second Year’s Interest = 121 - 110 = 11
The second year’s simple interest remains at Rs. 10 because it is calculated on the original principal.
✦ Try this: Calculate the amount at the end of first year if Rs. 10,000 is invested for two years at 10% rate of interest compounded annually and the interest for second year.
Amount at the end of first year:
A = 10,000(1 + 10/100) = 10,000(1.1) = Rs. 11,000
Amount for the second year = 11000(1.1) = Rs. 12,100
Interest for Second Year = 12100 - 11000 = Rs. 1100
☛ Also Check: NCERT Solutions for Class 8 Maths Chapter 8
NCERT Exemplar Class 8 Maths Chapter 9 Problem 49
Compound interest is the interest calculated on the previous year’s amount. Is the following statement true or false
Summary:
The statement “Compound interest is the interest calculated on the previous year’s amount.” is true
☛ Related Questions:
visual curriculum