Compound Interest Explained
Compound Interest Explained

Find CI when interest is compounded annually but Rates are different

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To find CI when interest is compounded annually but rates are different, we use the following formula :

A = P( 1 + R1)( 1 + R2)... ( 1 + Rn)

Where P = Principal
R1,R2,R3...interest rates percent for different years.

Examples :

1) Roger bought a refrigerator for $ 4000 on credit. The rate of interest for the first year is 5% and of the second year is 15%. How much will it cost him if he pays the amount after two years.

Solution:
Here, P = $ 4000, R1 = 5% p.a and R2 = 15% p.a.

∴ Amount after 2 years = P( 1 + R1)( 1 + R2)

= 4,000 x ( 1 + 0.05) ( 1 + 0.15)

= 4000 x ( 1.05) ( 1.15 )

= 4000 x 1.2075

= $ 4830
∴ The refrigerator will cost $ 4830 to Roger.
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2) Find the amount of $12,500 for 2 years compounded annually, the rate if interest being 15 % for the 1st year and 16 % for the second year.


Here, P = $12,500 , R1 = 15 % and R2 = 16 %

∴ Amount after 2 years = P( 1 + R1)( 1 + R2)

= 12,500x ( 1 + 0.15) ( 1 + 0.16)

= 12,500 x ( 1.15) ( 1.16 )

= 12,500 x 1.334

= $ 16,675
∴ Amount = $16,675


Compound Interest(CI)

Find Compound Interest when interest is compounded Half yearly
Find Compound Interest when interest is compounded Quarterly
Find CI when interest is compounded annually but Rates are different
Finding Principal
Finding Time Period of Investment
Finding Rate of Interest

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