Question

A man invests Rs. 5000 for 3 years, at 5% p.a. compound interest reckoned yearly. Income tax at the rate of 20% on the interest earned is deducted at the end of each year. Find the amount at the end of the third year.

• A. Rs. 5624.32
• B. Rs. 5630.50
• C. Rs. 5788.125
• D. Rs. 5627.20

Answer 1

The Correct Option is A

Rate of interest = 5% and income tax rate on interest = 20%
80% of interest is added for next year principal
Now effective rate of interest = 80% of 5% = 4% Principal sum = Rs. 5000 and time = 3 years
Therefore, Amount under compound interest =\(P(1+\frac{r}{100})^t\)
=\(5000(1+\frac{4}{100})^3\)
=\(5000\times\frac{26}{25}\times\frac{26}{25}\times\frac{26}{25}\)
=\(17526\times\frac{8}{25}=\)Rs.5624.32
The correct answer is (A) :Rs. 5624.32