1.

A man invests Rs. 6000 for 3 years at 8% p.a. compound interest reckoned yearly. Income tax at the rate of 20% on the interest earned is deducted at the end of each year. Find the amount at the end of the third year.1). Rs. 7125.422). Rs. 7546.83). Rs. 6792.64). Rs. 7227.3

Answer»

Now the formula for compound interest can be given as

CI = P(1 + R/100)- P

Where CI = Compound Interest

P = Principal

R = Rate of interest

T = Time period

In our CASE the interest EARNED at the end of first YEAR can be given as

CI = 6000(1.08)1-6000

CI = Rs. 480

Income tax @20% is DEDUCTED on the interest earned

∴ 480 × 0.2 = 96

∴ Amount at the end of first year = 6000 + 480-96 = 6384

Now the amount at the end of first year is TAKEN as principal at the beginning of second year

∴ Interest earned at the end of second year

CI = 6384(1.08) - 6384 = Rs. 510.72

Income tax deducted = 510.72 × 0.2 = 102.144

∴ Amount at the end of second year = 6384 + 510.72 - 102.144 = 6792.576

Interest earned at the end of third year

CI = 6792.576(1.08) - 6792.576 = 543.40

Income tax deducted = 543.40 × 0.2 = 108.68

∴ Amount at the end of third year = 6792.576 + 543.4 - 108.68 = 7227.296


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