How do you solve compound interest question with example?

Answer 1

Compound Interest is the interest which gets compounded in Specified time periods..

The formula for solving Compound Interest problems is as follows:

A=P(1+R/100)n

Where,

A= Amount after Including Compound Interest

P= Principle

R= Rate %

n= Time Period

For Calculating Compound Interest:

CI=A-P

Where,

CI= COmpound Interest

A= Amount

P= Principle

For Eg: If Rs 1000 is lend @ 10% Compounded Anually for 2 years, then calculation will be done as follows:

A= 1000 (1+10/100)2

= 1000 (1.1)2

= Rs 1210

& Compound Interest will be A-P i.e. Rs 1210-1000= Rs 210.

Also, Whenever Compounded Half Yearly or Compounded Quarterly is given, the rate will be divided by 2 & 4 respectively & time period will be multiplied by 2 & 4 respectively.

For Eg: if in the above eg, Compounded Half yearly is given, then

take R= 5%, n = 4 years (4 half years in 2 years)

& if Compounded Quarterly is given, then,

take R= 2.5%, n= 8 (8 quarters in 2 years)