Question

If a principal of ₹500 is compounded annually at the rate of 15% for 2 years, then the compound interest is .

• A. ₹161.25
• B. ₹167
• C. ₹75
• D. ₹171.34

Answer 1

The correct option is A ₹161.25

Given,
Principal = ₹500
Time period = 2 years
Rate of interest = 15%

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

Interest at the end of $1^{st}$ year $=500\times \frac{15}{100}=₹75$

Amount$\left(A_1\right)$ at the end of $1^{st}$ year $=₹500+₹75=₹575$

Interest at the end of $2^{nd}$ year $=575\times \frac{15}{100}=₹86.25$

Amount$\left(A_2\right)$ at the end of $2nd$ year $=575+86.25=₹661.25$

$\therefore \text{Compound interest}=Amount\left(A_2\right)-\text{Principal}=₹(661.25-500)=₹161.25$