Question

Anmol took a house loan this year. He borrowed 6 lakh from the bank at a rate of interest of 10% per annum.The interest is compounded annually.How much money will Anmol owe to the bank after two years?

Answer 1

Compound Interest

We'll use the formula:

${\displaystyle A=P\mleft(1+{\frac{r}{n}}\mright)^{nt}}$

Where:

A=final amount

P=initial principal balance

r=interest rate

n=number of times interest applied per time period

t=number of time periods elapsed

The problem describes the situation where that Anmol took a house loan and borrowed P=6 lakh at a rate of r=10%. Converting to decimal r=10/100=0.1.

It's also given the interest is compounded annually, thus n=1. In t=2 years:

Applying the formula

${\displaystyle A=6(1+{\frac{0.1}{1}})^{1\cdot2}}$

Calculating:

${\displaystyle A=6(1.1)^2=7.26}$

Anmol will owe 7.26 lakh to the bank after two years