Find the compound interest if Rs. 2,000 is lent out at the rate of 10% per annum, (Compounded yearly) for 3 years.

Appeared in: RRB Staff Nurse Kolkata-2015

Explanation

calculated using the formula for compound interest, where interest is earned on both the principal and the accumulated interest from previous periods.
The formula for the final amount (A) is A = P(1 + R/100)ⁿ, where P is the principal, R is the annual rate, and n is the number of years.
Substituting the given values: A = 2000 * (1 + 10/100)³ = 2000 * (1.1)³ = 2000 * 1.331 = Rs. 2,662.
The compound interest (CI) is the difference between the final amount and the principal: CI = A - P = 2662 - 2000 = Rs. 662.

Option A: This value represents the simple interest, not the compound interest.
Option B: This is the interest earned only in the first year.
Option D: This is an incorrect value resulting from a calculation error.

Visual 1: No visual is required for this question as it is a direct calculation-based problem.

Clinical Relevance

Nursing practice connection: This is primarily an exam-oriented knowledge point with limited direct bedside application, so retain Calculation of Compound Interest as background academic context rather than a clinical decision trigger.
Understanding compound interest is a fundamental life skill for managing personal finances, including savings, loans, and investments.
This concept is crucial for long-term financial planning, helping individuals understand how their money can grow over time or how much debt can accumulate.
What if the interest was compounded semi-annually? The rate would be halved (5%) and the number of periods would be doubled (6). The calculation would be A = 2000 * (1 + 5/100)⁶, resulting in a higher interest amount (Rs. 680.19), demonstrating the power of more frequent compounding.

How to Approach the Question

First, identify the key components from the question: Principal (P = Rs. 2,000), Rate (R = 10%), and Time (n = 3 years).
Recall the formula for calculating the final amount in a compound interest problem: A = P * (1 + R/100)ⁿ.
Substitute the identified values into the formula to calculate the total amount (A).
Once the amount is calculated, find the compound interest (CI) by subtracting the original principal from the amount: CI = A - P.
Perform the calculations carefully: A = 2000 * (1.1)³ = 2662. Then, CI = 2662 - 2000 = 662.
Finally, match your calculated result with the given options to find the correct answer.

Concept Tested & Keywords

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