20,000 is borrowed for 2 years at 8% compounded annually. The compound interest is:

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: NCERT Class 8 Maths, Ch 7 'Comparing Quantities', S7.4 Compound Interest_