Compound Interest Examples





In this page compound interest examples you can find the example problem on the topic compound interest.

Question 1:

Find the compound interest on $10000 for 3 years at 10% per annum.

Solution:

 A = P [ 1 + (r⁄100) x 1⁄j ]^n j


P = $10,000

r = 10 %

n = 3 years

j = 1 (compounding once in a year)

A = 10,000  (1 + 10⁄100 x 1⁄1)^(3 x 1)

                     = 10,000  (1 + 10⁄100)^3

                     = 10,000  (1 + 0.10)^3

                     = 10,000  (1.10)^3

                    = 10,000  (1.331)
    
                    = $ 13310 


Question 2:

Find the compound interest on $64000 for 1 year at the rate of 10% p.a compound quarterly.

Solution:

 A = P [ 1 + (r⁄100) x 1⁄j ]^ n j


P = $ 64,000

r = 10 %

n = 1 year

j = 4 (compounding 4 times in a year)

A = 64,000   (1 + 10⁄100 x 1⁄4)^(1 x 4)

                     = 10,000  (1 + 10⁄100 x 1⁄4)^4

                     = 10,000  (1 + 0.025)^4

                     = 10,000  (1.025)^4

                    = 10,000  (1.1038)
    
                    = $ 11038


Question 3:

Find the compound interest on $2000 for 3/2 years at the rate of 4% per annum, the interest payable half yearly.

Solution:

P = $ 2,000

r = 4 %

n = (3⁄2) year

j = 2 (compounding 2 times in a year)

 A = P [ 1 + (r⁄100) x 1⁄j ]^ n j

A = 2,000 (1 + (4⁄100) x 1⁄2)^ 1.5 x 2

                
                    = 2,000  (1+ 2⁄100)^3

                    = 2,000  (1 + 0.02)^3

                    = 2,000  (1.02 )^3
 
                   = 2,000  (1.061208)

                  = $ 2122.416 
 
Compound interest = Amount - principal

                 = 2122.416 - 2,000
 
                = $ 122.416


Question 4:

Find the principal which will amount to $ 4,500 in 2 years at 4% per annum compound interest.

Solution:

A = P [ 1 + (r⁄100) x 1⁄j ]^ n j

A = $ 4,500

r = 4 %

n = 2 years

j = 1 (compounding once in a year)

4,500 = P  (1 + 4⁄100 x 1⁄1)^(2 x 1)

4,500    = P (1 + 4⁄100)^ 2

4,500     = P  (1 + 0.04)^2

4,500     = P  (1.04)^2

4,500     = P  (1.0816)

P    = 4,500/1.0816

P    = $ 4160.50

Some Quotes

 Quote of Albert Einstein:

              " Compound interest is the 8th wonder of the world. He who understands it , earns it. .. He who does not . Pays it."

Other quotes:

             " Compound interest is the greatest discovery of all time."

             "Compound interest is more complicated than relative theory."

        Students can go through the examples discussed above in this page 'compound interest examples' and become master in compound interest. If you are having any doubt you can contact us through mail, we will help you to clear your doubts.

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