Calculation of Compound Interest

Compound interest is the interest calculated on the initial amount as well as on the accumulated interest of previous periods. To calculate the compound interest, we use the following formula:

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

where A is the amount received, P is the principal amount (initial deposit), r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.

In this case, P = Rs 20000, r = 8%, n = 1 (compounded annually), and t = 5 years. Plugging these values into the formula, we get:

A = 20000(1 + 0.08/1)^(1*5)
= 20000(1.08)^5
= Rs 29,212.80

Therefore, the amount received after 5 years at a compound interest rate of 8% per annum is Rs 29,212.80.

Explanation

The compound interest formula takes into account the effect of compounding on the interest earned. In simple interest, the interest earned is calculated only on the principal amount. However, in compound interest, the interest earned is added to the principal amount, and the interest for the next period is calculated on the new amount.

In this case, the initial deposit of Rs 20000 earns 8% interest per annum. At the end of the first year, the amount will be:

A = 20000(1 + 0.08/1)^(1*1)
= Rs 21,600

At the end of the second year, the amount will be:

A = 20000(1 + 0.08/1)^(1*2)
= Rs 23,328

This process continues for 5 years, resulting in an amount of Rs 29,212.80 at the end of the fifth year. Therefore, the compound interest earned on the initial deposit is Rs 9,212.80.

Conclusion

Compound interest is a powerful tool for earning interest on your savings. By reinvesting the interest earned, you can earn more interest over time. In this case, the initial deposit of Rs 20000 grew to Rs 29,212.80 after 5 years at a compound interest rate of 8% per annum.

28,000
W.N.
20,000 ×8÷100
=1,600(per annum)
1,600×5(as per calculated on 5 Months) = 8,000
now, 20,000+8,000(5 month Interest)
=28,000(answer)