Question

A principal of ₹ 40,000 is compound annually at the rate of 10% for 2 years. What is the compound interest?

• A. ₹ 8400
• B. ₹8000
• C. ₹ 7000
• D. ₹ 8700

Answer 1

The correct option is A

₹ 8400

Time period = 2 years

Principal = ₹ 40,000
Rate of interest = 10% p.a

In compound interest, interest is calculated annually.
Interest = $\frac{PTR}{100}$

Interest at the end of $1^{st}$ year is = $40,000\times \frac{10}{100}$= ₹ 4,000
Amount at the end of $1^{st}$ year = ₹ 40,000 + ₹ 4000 = ₹ 44,000

Interest at the end of $2^{nd}$ year is = $44,000\times \frac{10}{100}$ = ₹ 4,400
Amount at the end of $2nd$ year = 4,400 + 44,000 = ₹ 48,400

.'. Compound interest = Amount - Principal
= ₹ 48,400 - 40,000 = ₹ 8,400