Question

Albert invested an amount of Rs.8000 in a fixed deposit scheme for 2 years at compound interest rate 5 p.c.p.a. How much will Albert get on maturity of the fixed deposit?
(A). Rs. 8600
(B). Rs. 8620
(C). Rs. 8820
(D). None of these

Answer 1

Hint: When we borrow money from a bank in the form of loan which is known as principal (P) amount, for a particular time period ‘t’ at an interest rate 0f R% then the extra amount of money that is paid to bank during payback is known as Simple interest (S.I).
Simple interest \[ = \dfrac{{P \times R \times t}}{{100}}\]
And the total amount paid to the bank \[ = P + S.I\]
Compound interest is calculated on the initial interest with all the accumulated interests from previous periods for example,
If any amount P is compounded annually then the interest is calculated for the first year and then the amount is the sum of interest and principal amount. Then for the next year the amount calculated will become the new principal.
\[C.I.{\text{ }} = {\text{ }}P{\left( {1 + R / 100} \right)^t}\; - {\text{ }}P\]
\[A{\text{ }} = {\text{ }}P{\left( {1 + R/100} \right)^t}\]

Complete step by step solution: Given, Principal amount \[ = Rs.8000\]
Time for which it is deposited \[ = 2years\]
Rate of interest \[ = 5\% \]per annum.
As we know that if the amount is compounded annually \[A{\text{ }} = {\text{ }}P{\left( {1 + R/100} \right)^t}\]
Putting the values of P, t and R in the above equation, we get,
\[A{\text{ }} = {\text{ 8000}}{\left( {1 + 5/100} \right)^2} = 8000{(\dfrac{{21}}{{20}})^2} = Rs.8820\]

Thus correct answer is option ( C ) that is Rs. 8820

Note: In this question p.c.p.a means percent per annum. Carefully observe the question and see whether the amount is compounded annually quarterly or half yearly.