Question

Rs. 5000 is invested in a Term Deposit Schme that fetches interest 6% per annum compounded quarterly. What will be the interest after one year? What is effective rate of interest? 

Answer 1

Solution: We know that I= P[(1+i)^n -1]

Here P = Rs. 5000

i = 6% p.a. = 0.06 p.a. or 0.015 per quarter

n= 4

and I = amount of compound interest putting the values we have I = Rs. 5000 [(1+0.015)⁴-1] = Rs. 5000 x 0.06136355 = Rs. 306.82

For effective rate of interest using | = PEt

we find 306.82 = 5000 x E x 1. 306.82

   E = 306.82/5000 = 0.0613 or 6.13%

rate of interest is 0.0613 or 6.13%