allery20,000 is borrowed for 2 years at 8% compounded annually. The compound interest is:
A3,200
B3,456
C4,320
D3,328
Answer & Solution
Correct answer: D. 3,328
1. Year one interest is 8 per cent of 20000 = 1600, so the amount becomes 21600.
2. Year two interest is charged on that new amount, not on the original sum.
3. So it is 8 per cent of 21600 = 1728.
4. The total interest is 1600 + 1728 = 3328.
5. 3200 is the simple interest, and the 128 difference is precisely the interest earned on the first year's interest.
_Source: syllabus Maths, Ch 7 'Comparing Quantities', S7.4 Compound Interest_
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