Question

Surabhi borrowed a sum of Rs. 12,000 from a finance company to purchase a refrigerator. If the rate of interst is $5\%$ per annum compounded annually, calculate the compound interest that Surabhi has to pay to the company after 3 years.

Answer 1

Sum of money borrowed (P) = Rs. 12000
Rate (R) $=5\%$ p.a
Period (T) = 3 years
Interest for the first year $=\frac{PRT}{100}$
$=Rs.\frac{12000\times 5\times 1}{100}=Rs.600$
Amount after one year
= Rs. 12000 + Rs. 600 = Rs. 12600
Or principal for the second year = Rs. 12600
$\therefore$ Interest for the second year
$=Rs.\frac{12600\times 5\times 1}{100}=Rs.630$
Amount after second year
= Rs. 12600 + Rs. 630 = Rs. 13230
Or Principal for the third year = Rs. 13230
Interest for the third year
= Rs. 661.50
$\therefore$ Total compound interest for 3 years
= Rs. 600 + Rs. 630 + Rs. 661.50
= Rs. 1891.50