What will be the amount to be paid at the end of 5 years on Rs. 4500 at 10% per annum compounded annually?
- AOption (a)
7265.3
- BOption (b)
7545.3
- COption (c)
7247.3
- DOption (d)
7145.3
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Correct answer
7247.3
Why this answer is correct
Shortcut Trick
The effective compound interest rate for 10% per annum over 5 years can be directly derived from the multiplying factor 1.1
We know that 1.15 = 1.61051, meaning the total amount becomes 161.051% of the principal.
Amount = 1.61051 × 4500
⇒ Amount = 7247.295
⇒ Rounding to one decimal place, we get 7247.3
∴ The correct answer is ₹7247.3.
Alternate Method
Given:
Principal (P) = ₹4500
Rate of Interest (R) = 10% per annum
Time (n) = 5 years
Formula Used:
Amount (A) = P × (1 + R/100)n
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
4500 4950 5445 5989.5 6588.5 7247.3
Each step × 1.1 (+10%)
Calculations:
⇒ A = 4500 × (1 + 10/100)5
⇒ A = 4500 × (11/10)5
⇒ A = 4500 × 1.61051
⇒ A = 7247.295
⇒ Amount ≈ ₹7247.3
∴ The correct answer is ₹7247.3.
Additional Information
Effective Compound Interest Rates
For a 10% interest rate, the effective CI is 21% for 2 years, 33.1% for 3 years, and 46.41% for 4 years. Remembering these saves significant calculation time in exams.
Difference Between CI and SI
For 2 years, the difference between Compound Interest and Simple Interest on the same principal is computed as Diff = P × (R/100)2.
Rule of 72
The approximate time required to double your principal amount at a given compound interest rate can be found directly using 72 ÷ R.