# Deducing a Formula for Compound Interest

Suppose is the sum on which interest is compounded annually at a rate of R% per annum.

Let and R = 10% per annum.

Or

Â

Or

Â

Proceeding in this way the amount at the end of

*n*years will be

Â

Â

*n*years, and not the formula for compound interest.

CI = A - P.

We can find the CI using this formula.

Â

Example

Find CI on Rs. 8000 for 3 years at 5% per annum compounded annually.

Solution