Find the interest (in ? ) earned in the first year on ? 200 at 20 % p.a. compound interest, inte

step 1 Hello, the interest in the first year will be 20 % of our 200, which is 20 over 100, that is 40,

Find the interest (in ? ) earned in the first year on ? 200...

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Key Concepts

Compound Interest

Compound interest is the process by which interest is added to the principal amount so that, from that moment on, the interest that has been added also earns interest. This means that interest is calculated on both the initial principal and the accumulated interest from previous periods, resulting in exponential growth over time.

Compounding Frequency

Compounding frequency refers to the number of times the accrued interest is added to the principal within a year. This concept is significant because the more frequently interest is compounded, the more interest will be accumulated, as each addition becomes subject to further interest calculations. When interest is compounded more frequently, the effective rate of growth increases compared to less frequent compounding.

Periodic Interest Rate

When dealing with compound interest, the periodic interest rate is the interest rate applied during each compounding period. It is obtained by dividing the annual interest rate by the number of compounding periods per year. This concept is fundamental in calculating the interest accrued over each period, especially in cases like semi-annual or quarterly compounding.

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