Compound interest

·         Compound interest

CONCEPT

Compound Interest:Sometimes it so happens that the borrower and 

the lender agree to fix up a certain unit of time ,say yearly or half-yearly 

or quarterly to settle the previous account.

In such cases ,the amount after the first unit of time becomes the principal

for the 2nd unit ,the amount after second unit becomes the principal for the

3rd unit and so on.

After a specified period ,the difference between the amount and the money

borrowed is called Compound Interest for that period.

Formulae:

Let principal=p,Rate=R% per annum Time=nyears

1.When interest is compounded Annually,

Amount=P[1+(R/100)]n

2.When interest is compounded Halfyearly,

Amount=P[1+((R/2)100)]2n

3.When interest is compounded Quaterly,

Amount=P[1+((R/4)100)]4n

4.When interest is compounded Annually,but time in fractions say 3 2/5 yrs

Amount=P[1+(R/100)]3[1+((2R/5)/100)]

5.When rates are different for different years R1%,R2%,R3% for 1st ,2nd ,

3rd yrs respectively

Amount=P[1+(R1/100)][1+(R2/100)][1+(R3/100)]

6.Present Worth of Rs.X due n years hence is given by 

Present Worth=X/[1+(R/100)]n