Question:
Meera borrowed a sum of Rs 1000 from Sita for two years. If the rate of interest is 10% compounded annually, find the amount that Meera has to pay back.
Solution:
Given:
$\mathrm{P}=\mathrm{Rs} 1,000$
$\mathrm{R}=10 \%$ p. $\mathrm{a} .$
$\mathrm{n}=2$ years
We know that amount $\mathrm{A}$ at the end of n years at the rate $\mathrm{R} \%$ per annum when the interest is compounded annually is given by $\mathrm{A}=\mathrm{P}\left(1+\frac{\mathrm{R}}{100}\right)$.
$\therefore \mathrm{A}=1,000\left(1+\frac{10}{100}\right)^{2}$
$=1,000(1.1)^{2}$
$=1,210$
Thus, the required amount is Rs 1,210 .