Question 27 of 45intermediate🔧 ApplyNumerical4 marks

Bank of Wahapur offers an interest of 5% p.a. Compare how much one gets if one deposits ₹20,000 for a period of 4 years with compounding and without compounding annually.

Correct Answer

Without compounding: Interest = 20,000×0.05000 \times 0.05 × 4 = ₹4,000 Total = ₹24,000

With compounding: Amount = 20,000 × (1.05)⁴ = 20,000×1.2155000 \times 1.2155 = ₹24,310.13

Difference: Difference = ₹310.13 more with compounding.

Exercise: Figure it Out (Section 4) | Q: 2 | (Page Page 22)
For More Understanding

Explanation

The chapter shows the formula for compound interest: A = P(1+r)^t. Over longer periods, the difference between compound and simple interest becomes more significant.

Solution Steps

  1. Without compounding:

  2. Interest = 20,000×0.05000 \times 0.05 × 4 = ₹4,000

  3. Total = ₹24,000

  4. With compounding:

  5. Amount = 20,000 × (1.05)⁴

  6. = 20,000×1.2155000 \times 1.2155 = ₹24,310.13

  7. Difference = ₹310.13

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