can u solveand explain this find the compound interest of 8000 for 2 yrs at '12and1\2%' per annum?

Answer 1

the Future value in n years at i compounded rate of return is

FV=PV(1+i)^n
FV=8000(1+.125)^2
FV=8000(1.125)^2
FV=8000(1.266) (approximately I rounded up)
FV=10128 (approximately)

the compound interest = FV-PV
10128-8000=2128

Compound interest simply means you are earning interest on previously earned interest as well as the original amount.

Answer 2

Now, here's a rub for you. Many, perhaps most, banks actually compound interest on a daily basis, not annually. The daily interest paid in this problem then is (0.125 / 365) = 0.0003425 (approximately). Since compounding is occurring, we must add 1 to this and raise it to a power.

The amount A after a full year of compounding is given by this formula:

A = P(1 + 0.0003425)^365

So, after two years:

A = P(1 + 0.0003425)^730

A = $8000.00(1.2840) = $10,272.00

So, the interest earned is $2272.00.

Notice that since the number of compounding periods is large, the previous equations approach the equation for continuous compounding:

A = P(e^rt), where r is the annual interest rate and t is the time in years.

Using the above information and the equation for continuous compounding, we get this result:

A = $8000.00 [e^(2 x 0.125)] = $8000.00 [e^0.25] = $8000.00[1.2840] = $10,272.00

The interest earned using the daily and the continuous method yield essentially the same result. So, when banks compound on a daily basis, they are for all practical purposes compounding continuously.

Notice too that the daily and continuous compounding methods result in considerably more interest accruing. In this case, about $147.00 more dollars. Knowing this, where are you going to do your banking?

Answer 3

compound interest : interest for later periods is on principle and past interest.

after year 1: Principle_Y1 = Principle + ( 12.5 x Principle / 100 )
or = 125 x Principle / 100 <-- no decimal point

after year 2: Principle_Y2 = Principle_Y1+ ( 12.5 x Principle_Y1/ 100 )

Answer 4

1st year interests =
12.5% x 8000 = 1000
Total = 9000

2nd year interests =
12.5% x 9000 = 1125
Total = 10125

Hence the compound interest in 2125$