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Compound Interest With Growing Principle

A man takes a $10,000 loan at 10% annual interest. The document solves for: (i) amount after 1 year ($11,000), (ii) compound interest over 2 years ($2,100), (iii) sum required to clear debt after 2 years ($12,100), (iv) difference between compound and simple interest over 2 years ($100). It also solves for the principal sum where the difference between 2-year compound and simple interest at 4% is $80 ($50,000) and the amount and compound interest on $10,000 at 8% annually compounded half-yearly ($10,816 and $816 respectively).

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Aysha Fida
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16 views

Compound Interest With Growing Principle

A man takes a $10,000 loan at 10% annual interest. The document solves for: (i) amount after 1 year ($11,000), (ii) compound interest over 2 years ($2,100), (iii) sum required to clear debt after 2 years ($12,100), (iv) difference between compound and simple interest over 2 years ($100). It also solves for the principal sum where the difference between 2-year compound and simple interest at 4% is $80 ($50,000) and the amount and compound interest on $10,000 at 8% annually compounded half-yearly ($10,816 and $816 respectively).

Uploaded by

Aysha Fida
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1. A man takes a loan of $ 10,000 at a compound interest rate of 10% per annum.

(i) Find the amount after 1 year.

(ii) Find the compound interest for 2 years.

(iii) Find the sum of money required to clear the debt at the end of 2 years.

(iv) Find the difference between the compound interest and simple interest at the
same rate for 2 years.

Solution:

(i) The interest for the first year = 10% of $10,000

= $1010010100 × 10,000

= $ 1,000

Therefore, the amount after 1 year = Principal + Interest

= $10,000 + $ 1,000

= $ 11,000

(ii) For the second year, the new principal is $ 11,000

Therefore, the interest for the 2nd year = 10% of $ 11,000

= $1010010100 × 11,000

= $ 1,100

Therefore, the compound interest for 2 years = the interest for the 1st year + the
interest for the 2nd year

= $ 1,000 + $ 1,100

= $ 2,100

(iii) The required sum of money = Principal + compound Interest for 2 years

= $ 10,000 + $ 2,100

= $ 12,100

(iv) The simple interest for 2 years = P×R×T100�×�×�100


= $ 10,000×10×210010,000×10×2100

= $ 2,000

Therefore, the required difference = $ 2,100 - $ 2,000 = $ 100


2. At 4% per annum, the difference between simple and compound interest for 2
years on a certain sum of money is Rs. 80. Find the sum

Solution:

Let the sum of money be $ x,

The interest for the first year = 4 % of $x

= $ 41004100 × x
= $ 4x1004�100
= $ x25�25

Therefore, the amount after 1 year = Principal + Interest

= $ x + $ x25�25
= $ 26x2526�25
For the second year, the new principal is $ 26x2526�25
Therefore, the interest for the 2nd year = 4 % of $ 26x2526�25
= $ 41004100 × 26x2526�25
= $ 26x62526�625
Compound interest for 2 years = $ x25�25 + $ 26x62526�625
= $ 51x62551�625
At 4% rate simple interest for 2 years = $26x25×4×T10026�25×4×�100
= $x×4×2100�×4×2100
= $8x1008�100
= $2x252�25

Now, according to the problem, we get

51x62551�625 - 2x252�25 = 80
⟹ x(5162551625 - 225225) = 80
⟹ x625�625 = 80

⟹ x = 80 × 625

⟹ x = 50000

The required sum of money is $ 50000

3. Find the amount and the compound interest on $10,000 at 8% per annum and in 1
year, interest will being compounded half-yearly.
Solution:

For first half-year principal = $ 10,000

Rate = 8%

Time = ½ year

The interest for the first half-year = P×R×T100�×�×�100


= 10000×8×1100×210000×8×1100×2

= $ 400

Therefore, the amount after half- year = Principal + Interest

= $ 10,000 + $ 400

= $ 10,400

Therefore, at 8% rate the interest for the 2nd half-year =


$10400×8×1100×210400×8×1100×2

= $ 416

The required sum of money = Principal + compound Interest

= $10,400 + $ 416

= $ 10,816

Therefore, the required amount = $ 10,816 and

the compound interest = Amount - Principal

= $ 10,816 - $ 10,000

= $ 816

From the above examples we conclude that:

(i) When the interest is compounded yearly, then the principal does not remain same
every year.

(ii) When the interest is compounded half-yearly, then the principal does not remain
same every 6 months.

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