Question 5

A certain amount of money invested at 10% per annum compound interest for two years became Rs. 2000.
What is the initial investment?

Solution

If the principle amount 'P' when compounded annually for 'n' years at 'R%" interest rate per annum becomes P'.

Then $$P' = P {[1 +\frac{R}{100}]}^{n}$$

Given P' = 2000, n = 2 years, R = 10%

$$\Rightarrow P = P'\div {[1 +\frac{R}{100}]}^{n}$$

$$\Rightarrow P = 2000\div {[1 +\frac{10}{100}]}^{2}$$

$$\Rightarrow P = 2000\div 1.21$$

$$\Rightarrow P = 1653$$

Hence the initial amount P = Rs. 1,653.

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