Question

What will Rs500 amount to in 10 years after its deposited in a bank which pays annual interest of 10% compounded annually?

Answer 1

Hint: We have to calculate the money that Rs500 will amount to after 10 years if the bank pays an annual interest of 10% which is compounded annually. Thus Rs500 will be our principal amount. Use the direct formula for compound interest, this will help you get the final amount after 10 years.

The amount which is getting deposited in the bank is Rs500, thus principal value P=Rs500………. (1)
Now the rate of interest provided by the bank compounded annually is 10%, r=10%................. (2)
 The tenure for which the applicant is depositing his money into the bank is 10years, T=10 years…… (3)
Now the formula for compound interest is $A = P{\left( {1 + \dfrac{r}{{100}}} \right)^T}$ where A is the amount that the depositor will be getting, P is the principal value deposited into the bank, r is the rate of interest and T is the tenure for which the amount is deposited.
Substituting the values using equation (1), (2) and (3) we get
$A = 500{\left( {1 + \dfrac{{10}}{{100}}} \right)^{10}}$
$ \Rightarrow A = 500{\left( {1 + 0.1} \right)^{10}}$
$ \Rightarrow A = 500{\left( {1.1} \right)^{10}}$
Thus on solving we get $A = 1296.87$
Hence the depositor will be getting RS1269.87 if he deposits an amount of Rs500 for 10 years in a bank which gives an interest of 10% compounded annually.

Note: Whenever we face such types of problems the key point that we need to understand is about the principal value and the tenure of the amount in the bank. The tenure should always be in years, in some questions it may be in months thus simply convert it to year.