Akshay invested ₹57,500 in a bank. How much compound interest (in ₹) will he…
2026
Akshay invested ₹57,500 in a bank. How much compound interest (in ₹) will he earn after two years with annual compounding, if the interest rate is 4% per annum in the first year and 1 percentage point higher in the second year?
Answer: C. 5,290 — ConceptWhen annual interest rates change from year to year, each year’s growth factor is applied to the balance carried forward from the previous year. For…
- A.
5,540
- B.
5,090
- C.
5,290
- D.
4,940
Attempted by 26 students.
Show answer & explanation
Correct answer: C
Concept
When annual interest rates change from year to year, each year’s growth factor is applied to the balance carried forward from the previous year.
For principal P and successive annual rates r1 and r2, the final amount is A = P(1 + r1/100)(1 + r2/100), and compound interest is A − P.
Application
The first-year rate is 4%, and the second-year rate is 4% + 1% = 5%.
After the first year, the balance is ₹57,500 × 1.04 = ₹59,800.
After the second year, the balance is ₹59,800 × 1.05 = ₹62,790.
Therefore, compound interest for two years is ₹62,790 − ₹57,500 = ₹5,290.
Cross-check
Directly, ₹57,500 × 1.04 × 1.05 = ₹57,500 × 1.092 = ₹62,790, which gives the same interest of ₹5,290 after subtracting the principal.
Result
The compound interest earned after two years is ₹5,290.