Question

4. Kabo saved P10,000 with FNB for 5 years earning an interest of 10% per annum. Calculate
the amount of money Kabo will receive at the end of 5years:
i. If simple interest was used?
ii. If compound interest was used?

Answer 1

Available information in the question

Amount saved is 10000 for 5 years at the rate of 10% per annum.

We have to calculate amount Kabo will receive at the end of 5 years

Case i- If simple interest is calculated.

Formula for Simple Interest- A = P* (1+rt)

Where A is the final amount, P is the principal amount, r is the rate of interest and t is the time period in years.

So lets calculate final amount after 5 years at the rate of 10% simple interest

A= 10000*(1+10%*5)

A= 10000*(1+(10*5/100))= 15000.

Answer- Kabo will receive P15000 after 5 years when simple interest is calculated.

Case ii- If compound interest is calculated.

Formula for Compound Interest- A = P* (1+r)^n

"A" is the final amount, "P" is the principal amount, "r" is the rate of interest, "n" is the number years

Now let us calculate the final amount after 5 years at the rate of 10% compound interest

A= 10000*(1+10%)^5

A= 10000*(1.1)^5= 10000*1.61051

A= 16105.1

Answer- Kabo will receive P16105.1 after 5 years when Compound interest is calculated.