Question

Rs. 8000 is lent out at 7% compound interest for 2 years. At the end of the first year, Rs. 3560 are returned. Calculate:

(i) the interest paid for the second year

(ii) the total interest paid in 2 years

(iii) the total amount of money paid in 2 years to clear the debt

Answer 1

Principal (P) = Rs 8000
Rate of interest (R) = 7%
If n is the number of times compounded, amount at compount interest = P(1 + R/100)ⁿ
Amount at the end of the first year = 8000(1 + 7/100)¹ = Rs 8560
Interest paid for first year = 8560 - 8000 = Rs 560
Amount of money returned after first year = Rs 3560
Balance amount after one year = 8560 - 3560 = Rs 5000
Amount at the end of the second year = 5000(1 + 7/100)¹ = Rs 5350
(i) Interest paid for the second year = 5350 - 5000 = Rs 350
(ii) Total interest paid in two years = 560 + 350 = Rs 910
(iii) Total amount of money paid to clear the debt = 8000 + 910 = Rs 8910.