What will be the compound interest on Rs.18,600 for 2 years, the rate of interest being 8% for the first year and 15% for the second year?

Solution (By Examveda Team)

The formula for annual compound interest, including principal sum, is:
A = P (1 + r/n) ^nt

Where:
A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for

Calculate Interest for first year after that add it in principal and after that calculate second year interest.
Principal P = Rs. 18600
Rate of interest r1 for first year is 8%. = 8/100 = 0.08
Rate of interest r2 for second year is 15%. = 15/100 = 0.15
time t = 1
n =12
for a first year,
A1 = 18600 ( 1 + 0.8/12)^12*1 = Rs.20143.80
Now For Second year,
A2 = 20143.8 ( 1 + 0.15/12)^12*1 = Rs. 23382

Total Interest = 23382 - 18600 = Rs.4782