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Question
What will be the compound interest on Rs 4000 in two years when rate of interest is 5% per annum?
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Solution
We know that amount A at the end of n years at the rate of R % per annum is given by A = P\[ \left( 1 + \frac{R}{100} \right)^n . \]
Given:
P = Rs 4, 000
R = 5 % p . a .
n = 2 years
Now,
\[A = 4, 000 \left( 1 + \frac{5}{100} \right)^2 \]
\[ = 4, 000 \left( 1 . 05 \right)^2 \]
= Rs 4, 410
And,
CI = A - P
= Rs 4, 410 - Rs 4, 000
= Rs 410
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