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Question

A man invests Rs. 6500 at 5% compound interest for 3 years. Calculate
a) The interest for the first year
b) Amount at the end of second year
c) Interest for the third year.

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Solution

Principal =P=Rs.6500
rate of interest =r=5% CI p.a.
time =t=3 years
a) Interest for the first year will be the same as for the case of simple interest
I=P×r×t100=6500×5×1100=Rs.325
(b) Amount at the end of second year the amount of the end of n years is given by
A=P(1+r100)n
Using this we can calculate the amount of the end of two years
A=6500(1+5100)2
=6500(2120)2
=6500×21×21400
=7166.25
(c) Interest for the third year
Amount at the end of second year =Rs.7166.25
Interest two year =Rs.7166.256500 =Rs.666.23
Amount of the end of third year =P(1+r100)3
=6500×21×21×2120×20×20=Rs.7524.5625
Interest for the third year = Interest for 3 years interest for 2 years =1024.5625668.25=Rs.358.3125

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