Question

Find the amount of compound interest on Rs. 20,000 for 3 years compounded annually. The rate of interest for the first year is 5% and the rate of interest for the next two years is 10%:

• A. Rs. 5,410
• B. Rs. 5,400
• C. Rs. 5,450
• D. Rs. 5,480

Hint:

When interest rates vary per year, compute year-wise amounts sequentially using the compound interest formula.

Answer 1

The Correct Option is A

Step 1: Apply the compound interest formula for different rates
Amount after first year: \[ A_1 = P \times \left( 1 + \frac{5}{100} \right) = 20000 \times 1.05 = 21000 \] Amount after second year: \[ A_2 = A_1 \times \left( 1 + \frac{10}{100} \right) = 21000 \times 1.1 = 23100 \] Amount after third year: \[ A_3 = A_2 \times \left( 1 + \frac{10}{100} \right) = 23100 \times 1.1 = 25410 \] Step 2: Compute Compound Interest
\[ \text{CI} = A_3 - P = 25410 - 20000 = 5,410 \] Thus, the correct answer is Rs. 5,410.