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Question

# Compute the compound interest on Rs.4000 for 11/2 years at 10% p.a. compounded half-yearly.

A
16,000
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B
630.50
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C
425.76
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D
1,640
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Solution

## The correct option is B 630.50Principal P=Rs.4,000. Since the interest is compounded half-yearly the number of conversion periods in 112 years are 3. Also the rate of interest per conversion period (6 months) is 10% ×12=5% (0.05 in decimal).Thus the amount An (in Rs.) is given byAn=P(1+i)nA3=4,000(1+0.05)3=4,630.50The compound interest is therefore Rs.(4,630.50−4,000)=Rs.630.50.

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