Question
Download Solution PDFAn amount is invested at 10% per annum compound interest for 2 years, and the interest earned is ₹945. What is the principal amount?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe formula for compound interest is:
A = P [1 + (r/100)]n
Where:
A = Total amount after interest
P = Principal amount initial investment
r = Annual interest rate in percentage
n = Number of years
The interest earned is the difference between the total amount A and the principal P:
Interest = A - P
We are given:
Interest earned = ₹945
Annual interest rater= 10%
Number of yearsn= 2
Substitute these values into the formula:
A = P [1 + (10 / 100)]2
Simplify:
A = P (1.1)2
A = P × 1.21
The interest earned is:
Interest = A - P
Substitute A = 1.21P:
945 = 1.21P - P
Simplify:
945 = 0.21P
To find P, divide both sides by 0.21:
P = 945 / 0.21
P = 4500
Thus, the principal amount is ₹4500.
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