Question

Without using the formula for compound interest solve the following problem:

A sum of Rs 20,000 is borrowed by Simran for 2 years at an interest of 8% compounded annually. Find the Compound Interest (C.I.) and the amount she has to pay at the end of 2 years.

• A. $\text{Rs.}21600$
• B. $\text{Rs.}23000$
• C. $\text{Rs.}23200$
• D. $\text{Rs.}23328$

Answer 1

The correct option is D $\text{Rs.}23328$

To Find: The Simple Interest (S.I) for one year.

Let the pricipal for the first year be $P_1.$
Here, $P_1=\text{Rs.}20000$

$S{I}_1=$ Simple interest at 8% per annum for first year
$=\frac{20000\times 8}{100}=\text{Rs.}1600$

Then find the amount which will be paid or received. This becomes principal for the next year.

Amount at the end of first year is the principal for second year $P_2=P_1+S{I}_1=20000+1600=\text{Rs.}21600$

Interest for second year $=\frac{21600\times 8}{100}=\text{Rs.}1728$

Total amount to be paid back $=21600+1728=\text{Rs.}23328$