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Question

Find the compound interest on ₹ 3200 at 2.5% p.a for 2 years, compounded annually.
  1. ₹ 162
  2. ₹ 170
  3. ₹ 186
  4. ₹ 194


Solution

The correct option is A 162

Given that,
Principle = ₹ 3200
Rate = 2.5%
Time = 2 years, compounded annually 

We know that,
Amount = A = P[1 + (R/100)]n
Compound interest = Amount - Principal

Now, putting the given values into the formula 

A = P[1 + (R/100)]n

    = 3200 × [1 + (2.5/100)]2

    = 3200 × (1.050625)

    = ₹ 3362

Hence, Compound interest
= ₹ 
3362 - ₹ 3200
= ₹ 162

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