Question

Without using the formula for compound interest solve the following problem. A sum of Rs 20,000 is borrowed by Heena 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.

Answer 1

Find the Simple Interest (S.I) for one year.

Let the pricipal for the first year be P1. Here, P1 = Rs. 20000

SI1 = SI at 8% per annum for first year = $\frac{20000\times 8}{100}$ = 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 = P1 + SI1 = 20000 + 1600 = Rs. 21600 (P2, Principal for second year)

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

Total amount to be paid back = 21600 + 1728 = Rs. 23328