Question:
Anand obtained a loan of Rs 125000 from the Allahabad Bank for buying computers. The bank charges compound interest at 8% per annum, compounded annually. What amount wil he have to pay after 3 years to clear the debt?
Solution:
Principal amount, $P=$ Rs. 125000
Rate of interest, $R=8 \%$ p. a.
Time, $n=3$ year $s$
The amount including the compound interest is calculated using the formula,
$A=$ Rs. $\mathrm{P}\left(1+\frac{R}{100}\right)^{n}$
$=$ Rs. $125000\left(1+\frac{8}{100}\right)^{3}$
$=$ Rs. $125000\left(\frac{100+8}{100}\right)^{3}$
$=$ Rs. $125000\left(\frac{108}{100}\right)^{3}$
$=$ Rs. $125000(1.08)^{3}$
$=$ Rs. $125000(1.08 \times 1.08 \times 1.08)$
$=$ Rs. 157464
$\therefore$ Anand has to pay Rs 157464 after 3 years to clear the debt.