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Mr X borrowed 5120 at 12.5% per annum compound interest at the end of 3 years the money was required along with the interest accrued amount of interest paid by him is
? Related: Time Value of Money (Part - 3)
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Mr X borrowed 5120 at 12.5% per annum compound interest at the end of ...
To calculate the amount of interest paid by Mr. X, we need to understand the concept of compound interest and use the formula for compound interest.
Compound Interest:
Compound interest is the interest calculated on the initial principal as well as the accumulated interest from previous periods. It is different from simple interest, which is calculated only on the initial principal.
Formula for Compound Interest:
The formula to calculate compound interest is:
A = P(1 + r/n)^(nt) - P
Where:
A = Final amount including interest
P = Principal amount (initial amount borrowed)
r = Annual interest rate (as a decimal)
n = Number of times that interest is compounded per year
t = Number of years
Given Data:
Principal amount (P) = $5120
Annual interest rate (r) = 12.5% = 0.125 (as a decimal)
Number of years (t) = 3
Calculation:
Using the formula for compound interest, we can calculate the final amount (A) including interest.
A = P(1 + r/n)^(nt)
A = 5120(1 + 0.125/1)^(1*3)
A = 5120(1 + 0.125)^3
A = 5120(1.125)^3
A = 5120(1.4231)
A = $7285.12
To find the amount of interest paid by Mr. X, we subtract the principal amount from the final amount:
Interest paid = A - P
Interest paid = $7285.12 - $5120
Interest paid = $2165.12
Amount of Interest Paid: $2165.12
In this case, Mr. X paid a total interest of $2165.12 over a period of 3 years on a principal amount of $5120 borrowed at an annual interest rate of 12.5% compounded annually.
Compound Interest:
Compound interest is the interest calculated on the initial principal as well as the accumulated interest from previous periods. It is different from simple interest, which is calculated only on the initial principal.
Formula for Compound Interest:
The formula to calculate compound interest is:
A = P(1 + r/n)^(nt) - P
Where:
A = Final amount including interest
P = Principal amount (initial amount borrowed)
r = Annual interest rate (as a decimal)
n = Number of times that interest is compounded per year
t = Number of years
Given Data:
Principal amount (P) = $5120
Annual interest rate (r) = 12.5% = 0.125 (as a decimal)
Number of years (t) = 3
Calculation:
Using the formula for compound interest, we can calculate the final amount (A) including interest.
A = P(1 + r/n)^(nt)
A = 5120(1 + 0.125/1)^(1*3)
A = 5120(1 + 0.125)^3
A = 5120(1.125)^3
A = 5120(1.4231)
A = $7285.12
To find the amount of interest paid by Mr. X, we subtract the principal amount from the final amount:
Interest paid = A - P
Interest paid = $7285.12 - $5120
Interest paid = $2165.12
Amount of Interest Paid: $2165.12
In this case, Mr. X paid a total interest of $2165.12 over a period of 3 years on a principal amount of $5120 borrowed at an annual interest rate of 12.5% compounded annually.
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Mr X borrowed 5120 at 12.5% per annum compound interest at the end of 3 years the money was required along with the interest accrued amount of interest paid by him is Related: Time Value of Money (Part - 3)?
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Mr X borrowed 5120 at 12.5% per annum compound interest at the end of 3 years the money was required along with the interest accrued amount of interest paid by him is Related: Time Value of Money (Part - 3)? for CA CPT 2024 is part of CA CPT preparation. The Question and answers have been prepared according to the CA CPT exam syllabus. Information about Mr X borrowed 5120 at 12.5% per annum compound interest at the end of 3 years the money was required along with the interest accrued amount of interest paid by him is Related: Time Value of Money (Part - 3)? covers all topics & solutions for CA CPT 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Mr X borrowed 5120 at 12.5% per annum compound interest at the end of 3 years the money was required along with the interest accrued amount of interest paid by him is Related: Time Value of Money (Part - 3)?.
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