Do you want to calculate Compound Interest? If so, this article is the best place for you to guide you on the concept of Compound Interest as Repeated Simple Interest. We will explain to you everything on how to calculate compound interest as repeated simple interest without using a formula. Check out the Worked-out Examples on Method of Repeated Simple Interest Computation with a Growing Principal and master the concept.
How to Calculate Compound Interest as Repeated Simple Interest?
If you take money under compound interest, the interest earned at the end of the set period is not paid to the moneylender however it is added to the amount lent. Therefore, the sum earned becomes the next period’s principal. The Process is repeated till you determine the latest period’s amount.
Compound Interest is nothing ut the difference between the final amount and the original principal.
Compound Interest = Final Amount – Original Principal
To better understand this concept, let us see a few solved examples and the method of Repeated Simple Interest Computation with a Growing Principal.
See More:
- Introduction to Compound Interest
- To find Rate When Principal Interest and Time are given
- To find Time Principal Interest and Rate are given
Solved Examples on Compound Interest as a Repeated Simple Interest Computation with a Growing Principal
Example 1.
Find the compound interest on $15000 for 2 years at the rate of interest 8% per annum?
Solution:
Interest for the 1st year = \(\frac{15000*1*8}{100}\)
=\(\frac{120000}{100}\)
=$1200
Amount at the end of 1st year= Interest + Amount
=$1200+$15000
=$16200
Interest for 2nd Year = \(\frac{16200*1*8}{100}\)
=$1296
Amount at the end of 2nd Year = Interest + Amount
= $1296+$16200
= $17496
Therefore, Compound Interest = A – P
=$17496 – $15000
= $2496
Example 2.
Find the compound interest on $45000 for 3 years at the rate of interest of 3% per annum?
Solution:
Interest for the 1st year = \(\frac{45000*1*3}{100}\)
=\(\frac{135000}{100}\)
=$1350
Amount at the end of 1st year= Interest + Amount
=$1350+$45000
=$46350
Interest for 2nd Year = \(\frac{46350*1*3}{100}\)
=$1390.50
Amount at the end of 2nd Year = Interest + Amount
= $1390.5+$46350
= $47740.5
Interest for 3rd Year = \(\frac{47740.5*1*3}{100}\)
=$1432.215
Amount at the end of 3rd year = Interest + Amount
= $1432.215+$47740.5
=$49172.715
Therefore, Compound Interest = A – P
=$49172.715 – $45000
= $4172.715
Example 3.
Calculate the amount and compound interest on $20000 for 1 year at 5% p.a?
Solution:
Interest for 1st Year = \(\frac{20000*1*5}{100}\)
=$1000
Amount at the end of 1st year = Interest + Amount
=$1000+$20000
= $21000
Therefore, Amount and Compound Interest after 1 Year are $21000 and $1000
Example 4.
Calculate the amount on ₹6000 in 2 years and at 5% compounded annually?
Solution:
Interest at the end of 1st Year = \(\frac{6000*1*5}{100}\)
=₹300
Amount at the end of 1st Year = Interest+Amount
= ₹300+₹6000
=₹6300
Interest at the end of 2nd Year = \(\frac{6300*1*5}{100}\)
=₹315
Amount at the end of 2nd Year = Interest+Amount
=₹315+₹6300
=₹6615
Therefore, amount is ₹6615.