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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

 

Or


 

Proceeding in this way the amount at the end of

n years will be
 


 

We get the formula for the amount to be paid at the end of n years, and not the formula for compound interest.
CI = A - P.
We can find the CI using this formula.

 
Example

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

Solution






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