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Find the amount and the compound interest on ₹ 2000 at 10% p.a. for 2 years, compounded annually.

Answer:

Compound interest is calculated on the principal as well as the interest earned over the preceding month. It differs from simple interest in that interest is not applied to the principal when computing the next period's interest.

It is given that

Principal (P) = ₹ 2000

Rate of interest (r) = 10% p.a.

Period (n) = 2 ½ years

We know that

Amount =\mathrm{P}(1+\mathrm{r} / 100)^{\mathrm{n}}

Substituting the values

=2000(1+10 / 100)^{2}(1+10 /(2 \times 100))

By further calculation

= 2000 × 11/10 × 11/10 × 21/20

So we get

= ₹ 2541

Here

Interest = A – P

Substituting the values

= 2541 – 2000

= ₹ 541

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