Question

Daljit received a sum of Rs. 40000 as a loan from a finance company. If the rate of interest is $7\%$ per annum compounded annually, calculate the compound interest that Daljit pays after 2 years.

Answer 1

Amount of loan (P) = Rs. 40000
Rate (R) $=7\%$ p.a.
Period = 2 years
Interest for the first year $=\frac{PRT}{100}$
$=Rs.\frac{40000\times 7\times 1}{100}=Rs.2800$
Amount after one year
= Rs. 40000 + Rs. 2800 = Rs. 42800
Or principal for the second year = Rs. 42800
Interest for the second year
$=Rs.\frac{42800\times 7\times 1}{100}=Rs.2996$
$\therefore$ Total interest paid after two years
= Rs. 2800 + 2996 = Rs. 5796