Question

A sum of Rs. 500 is invested on compound interest at 20% per annum for a year. Find the amount of interest earned if the interest is compounded half-yearly.
1. Rs. 84
2. Rs. 125
3. Rs. 120
4. Rs. 105

Answer 1

Correct Answer - Option 4 : Rs. 105

GIVEN:

Principal = Rs. 500, R = 20% and T = 1

CONCEPT:

When interest is compounded half-yearly:

Time = 1 × 2 = 2

Rate = 20/2 = 10%

FORMULA USED:

A = P × [1 + R/100]^T

CALCULATION:

Applying the formula:

A = 500 × [1 + 10/100]²

= 500 × 1.21

= 605

Hence,

Interest = 605 - 500 = Rs. 105