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Question
Calculate the compound interest on Rs. 5,000 in 2 years; if the rates of interest for successive years be 10% and 12% respectively.
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Solution
For 1st year
Principal (P) = Rs. 5,000, Rate (R) = 10%, Time (T) = 1 year
∴ Interest = `(5,000xx10xx1)/100` = 50 × 10 = Rs. 500
∴ Amount at the end of 1st year = Rs. (5000 + 500) = Rs. 5500
For 2nd year
P = Rs. 5500, Rate = 12%, T = 1 year
∴ Interest = `(5500xx12xx1)/100` = 55 × 12 = Rs. 660
∴ Amount at the end of 2nd year = Rs. 5500 + Rs. 660 = Rs. 6160
Hence compound interest = Rs. 6160 − Rs. 5000 = Rs. 1160
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