Calculation of Compound Interest

To calculate the compound interest on Rs. 100 invested at 5% p.a. for 20 years, we need to use the formula:

A = P(1+r/n)^(n*t)

Where:
A = Final Amount
P = Principal Amount
r = Rate of Interest
n = Number of times interest is compounded per year
t = Time period in years

Values for Calculation:

- P = Rs. 100
- r = 5%
- n = 1 (interest is compounded annually)
- t = 20 years

Calculation:

A = 100(1+0.05/1)^(1*20)
A = 100(1.05)^20
A = Rs. 265.33 (approx.)

Therefore, the final amount after 20 years at 5% p.a. compound interest on Rs. 100 is Rs. 265.33.

Explanation:

- The principal amount (P) is Rs. 100 which is invested for 20 years.
- The rate of interest (r) is 5% per annum.
- The interest is compounded annually (n=1).
- Using the formula, we get the final amount (A) after 20 years as Rs. 265.33.
- This means that the investment of Rs. 100 has earned a compound interest of Rs. 165.33 over the 20-year period.

Compound interest is the concept of earning interest on the principal amount as well as the accumulated interest. As the interest is compounded annually, the return on the investment increases year after year. This is the reason why the final amount after 20 years is significantly higher than the initial investment of Rs. 100.

A= 100(1+0.05)^20