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Bank interest rate questions

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by stormier » Mon Feb 21, 2011 7:27 am
neilcao wrote:2% compound interest，no money put in and out in 10 years，the interests for two years is 5050, what's the original amount of money
This is an incomplete question. One needs to know whether the interest was compounded quarterly, annually, monthly, or ...
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by mk101 » Mon Feb 21, 2011 7:39 am
neilcao wrote:2% compound interest，no money put in and out in 10 years，the interests for two years is 5050, what's the original amount of money

I agree with the above post that the period of compounding should be provided, but assuming that the money was compounded annually we can solve it the following way

CI for 2 years = SI for the first year + SI for the 2 nd year on (P + SI of the first year)

5050 = s + 1.02 s

s =2500.

if this were the SI for the first year then the original principle = 125000 Rs considering 2 % interest
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by Anurag@Gurome » Mon Feb 21, 2011 8:31 pm
Solution:
Since nothing has been mentioned, we assume that the interest is being compounded annually.
Let the original amount of money be p.
Interest is 2%.
So, the amount after 2 years is p[1 + 2/100]^2 = p[1.02]^2.
The interest will be p[1.02]^2 - p.
Or p[1.02]^2 - p = 5050.
Or p = 5050/[1.02^2 - 1] = 5050/{[1.02+1][1.02 - 1]} = 5050/{2.02*0.02} = 125000.
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