ECONOMICS (CBSE/UGC NET)

ECONOMICS

COMPOUND INTEREST

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A bank is offering 7% annual compound interest on a savings account. If you deposit $1, 500, how much interest will you earn in three years?

A	$1837.56
B	$337.56
C	$30000
D	$31500

Explanation:

Detailed explanation-1: -How Compound Interest Works. Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one.

Detailed explanation-2: -(30000 + 4347) = Rs. 34347. Let the time be n years. n = 2 years.

Detailed explanation-3: -Solution: We use the present value formula, where A is $20, 000, r is 6% or 0.06, n is 12, and t is 5 years. Approximately $14, 827.45 should be invested today in order to accumulate to $20, 000 in five years.

Detailed explanation-4: -GIVEN : R1 = 2% R2 = 4% R3 = 6% FORMULA USED : Effective rate of C.I. = R1 + R2 + (R1 × R2)/100. CALCULATION : Effective rate of C.I. for 2 years = 2 + 4 + (2 × 4)/100. = 6 + 8/100 = 6.08% Effective rate of C.I. for 3 years = 6.08 + 6 + (6.08 × 6)/100 [∵ r1 = 6.08, r2 = 6] = 12.08 + 36.48/100. = 12.08 + 0.364. = 12.444%

There is 1 question to complete.