Compound Intrest Concept
Posted by
Ravi Kumar at Thursday, September 15, 2011
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Compound Interest:
Sometimes it so happens that the borrower and the lender agree to fix up a certain unit of time ,say yearly or halfyearly or quarterly to settle the previous account.
In such cases ,the amount after the first unit of time becomes the principal for the 2nd unit ,the amount after second unit becomes the principal for the 3rd unit and
so on. After a specified period ,the difference between the amount and the money borrowed is called Compound Interest for that period.
Formula:
Let principal=p, Rate=R% per annum, Time=n years
1.When interest is compounded Annually,
Amount=P[1+(R/100)]n
2.When interest is compounded Half yearly,
Amount=P[1+((R/2)100)]2n
3.When interest is compounded Quarterly,
Amount=P[1+((R/4)100)]4n
4.When interest is compounded Annually,but time in fractions
say 3 2/5 yrs Amount=P[1+(R/100)]3[1+((2R/5)/100)]
5.When rates are different for different years R1%,R2%,R3%
for 1st ,2nd ,3rd yrs respectively
Amount=P[1+(R1/100)][1+(R2/100)][1+(R3/100)]
6.Present Worth of Rs.X due n years hence is given by
Present Worth=X/[1+(R/100)]n