Question

Calculate the amount and compound interest on Rs 5000 in two years when the rate for interest for successive years is 6% and 8% respectively.

Answer 1

Hint: Use the information, \[SI = \dfrac{{PTR}}{{100}}\] where, P is principal amount, T is time for the interest and R is interest rate. Also, the compound interest amount at the end of first year will work as a principal amount.

Complete step-by-step answer:
Let count year by year. In the first year, principal amount P is 5000 Rs, time T is 1 year and the rate of interest R is 6%. Simple interest can be calculated as,
\[SI = \dfrac{{PTR}}{{100}} = \dfrac{{5000 \times 10 \times 6}}{{100}} = Rs.300\]. So, the
The principal amount for second year will be $P + SI = 5300$. In second year, the interest rate is
8% and time T is 1 year. So, the interest will be,
$ = \dfrac{{5300 \times 1 \times 8}}{{100}} = Rs.424$. Total amount will be $P + SI = 5300 +
424 = 5724$. The interest of second year is the required compound interest. So, $CI =
Rs.424$and the required amount is $Rs.5724$.

Note: In the solution, SI stands for simple interest and CI stands for compound interest. The basic difference between them is the principal amount. It's the same in case of SI whereas changes each year in case of CI.