What is the compound interest on ₹3,000 for 2 years at 20% per annum, interest compounded annually?
- AOption (a)
₹1,300
- BOption (b)
₹1,200
- COption (c)
₹1,440
- DOption (d)
₹1,320
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Correct answer
₹1,320
Why this answer is correct
Shortcut Trick
Effective rate for 2 years at 20% p.a. = 20 + 20 + (20 × 20) ÷ 100 = 44%.
Compound Interest = 44% of ₹3,000.
CI = 3,000 × 0.44 = ₹1,320.
∴ The correct answer is ₹1,320.
Alternate Method
Given: Principal (P) = ₹3,000, Rate (R) = 20%, Time (n) = 2 years.
Formula Used: Amount (A) = P(1 + R ÷ 100)n and CI = A − P
⇒ A = 3,000 × (1 + 20 ÷ 100)2
⇒ A = 3,000 × (120 ÷ 100) × (120 ÷ 100)
⇒ A = 3,000 × 1.2 × 1.2
⇒ A = 3,000 × 1.44
⇒ A = ₹4,320
⇒ CI = 4,320 − 3,000
⇒ CI = ₹1,320
∴ The correct answer is ₹1,320.
Additional Information
CI and SI Difference (for 2 years)
The difference between Compound Interest and Simple Interest for 2 years is given by: D = P × (R ÷ 100)2.
Effective Percentage Rate
For successive growth of x% and y%, the total growth is x + y + (xy ÷ 100)%. For 2 years at rate R, it is 2R + (R2 ÷ 100)%.
Compounding Frequencies
If interest is compounded half-yearly, the rate becomes R ÷ 2 and the time period becomes 2n.