Topic Content:
- Compound Interest
Compound interest is calculated the same way as simple interest except that the interest is added to the principal at the end of the year or period.
This means that in the following year, the interest will be higher because the principal is more. The original amount grows every year as the interest is added.
Example 11.4.1:
Calculate the compound interest on ₦80000 for 3 years at 5% per annum.
Solution
Using I = \( \frac{PRT}{100} \)
1st year: = I1 = \( \frac{80000 \: \times \: 5 \: \times \: 1 }{100} \)
= ₦4000
The amount at the end of 1st year becomes
₦4000 + ₦80000 = ₦84000
2nd year: The new principal = ₦84000
I2 = \( \frac{84000 \: \times \: 5 \: \times \: 1 }{100} \)
= ₦4200
The capital at the end of 2nd year becomes:
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