Compound interest is an Interest in which is compounded
periodically. The principal thus become cumulative. The amount of one period
becomes the principal of next period. Under compound interest, the interest
is not paid to the lender, but interest added to the principle at the end of
the time. i.e. either yearly. half year, month etc. Then the principle will definitely
change t(increase) at the end of each period or time which makes the
successive interest higher.
To find compound interest, the principal at the start of each
year must be calculated on a systematic basis. Principal is the amount given by
a lender to a borrower at an interest.
Example 1
Find the compound interest on N650 in
5 year at 4% per annum.
Solution
1st year
1 =
PxTxR
100
= N650x1x4
100
= N26
2nd year
Principal = N650+N26 =N676
Interest will be N676x4
100
= N27.04
3rd Year
Principal = N676+N27.04=N703.04
Interest will be N703.04x4
100
= N28.12
4th Year
Principal =N703.04 +N28.12 =N731.16
Interest will be = N731.16x4
100
N29.25
5th Year
Principal =N731.16+N29.25=N760.41
Interest will be N760.41x4
100
= N30.42
Final amount =N760.41+N30.42 =N790.83
Compound interest for 5 year =790.83-650.00
=N140.83.
Example Two
Find the compound interest on N2500
in 6 years at 2% per annum.
ITEMS
|
N
|
Principal in
year 1
|
2500
|
Interest in
year 1
|
50
|
Principal in year
2
|
2550
|
Interest in
year 2
|
51
|
Principal in year
3
|
2601
|
Interest in
year 3
|
52.02
|
Principal in
year 4
|
2656.02
|
Interest in
year 4
|
53.04
|
Principal in year 5
|
2705.06
|
Interest in year
5
|
54.10
|
Principal in
year 6
|
2759.16
|
Interest in year
6
|
56.18
|
FINAL AMOUNT
|
2814.34
|
ORIGINAL PRINCIPAL
|
2500.00
|
COMPOUD
INTEREST
|
314.34
|
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