Calculating the Amount after Two Years

Oct 13, 2025 by wbrum.org 80 views

Murali's Investment Conundrum: A Tale of Compound Interest

In the world of finance, compound interest plays a crucial role in determining the growth of investments. Murali, a shrewd investor, has borrowed a significant sum of money at a high interest rate and has decided to lend it out to Rohan at the same rate, but with a twist - the interest is compounded semi-annually. In this article, we will delve into the world of compound interest and calculate Murali's gain after two years.

Murali borrowed a sum of Rs. 4,50,000 at an interest rate of 15% per annum, compounded annually. On the same day, he lent out this money to Rohan at the same rate of interest, but compounded semi-annually. We need to find Murali's gain after two years.

Calculating the Amount after Two Years

To calculate the amount after two years, we will first calculate the amount after one year, and then use that amount to calculate the amount after two years.

Amount after One Year

The amount after one year can be calculated using the formula:

A = P(1 + r/n)

Where:

A = amount after one year
P = principal amount (Rs. 4,50,000)
r = annual interest rate (15% = 0.15)
n = number of times interest is compounded in a year (1 for annual compounding)

A = 450000(1 + 0.15/1) A = 450000(1 + 0.15) A = 450000(1.15) A = 517500

Amount after Two Years

Now that we have the amount after one year, we can calculate the amount after two years using the same formula, but with the amount after one year as the principal amount.

A = P(1 + r/n)

Where:

A = amount after two years
P = principal amount (Rs. 517500)
r = annual interest rate (15% = 0.15)
n = number of times interest is compounded in a year (2 for semi-annual compounding)

A = 517500(1 + 0.15/2) A = 517500(1 + 0.075) A = 517500(1.075) A = 556812.50

Now that we have the amount after two years, we can calculate Murali's gain by subtracting the principal amount from the amount after two years.

Gain = Amount after two years - Principal amount Gain = 556812.50 - 450000 Gain = 106812.50

In this article, we calculated Murali's gain after two years by using the formula for compound interest. We first calculated the amount after one year, and then used that amount to calculate the amount after two years. Finally, we calculated Murali's gain by subtracting the principal amount from the amount after two years. The result shows that Murali's gain after two years is Rs. 106812.50.

Compound interest plays a crucial role in determining the growth of investments.
The formula for compound interest is A = P(1 + r/n), where A is the amount after n years, P is the principal amount, r is the annual interest rate, and n is the number of times interest is compounded in a year.
Murali's gain after two years is Rs. 106812.50.

What is compound interest? Compound interest is the interest earned on both the principal amount and any accrued interest over a period of time.
How is compound interest calculated? Compound interest is calculated using the formula A = P(1 + r/n), where A is the amount after n years, P is the principal amount, r is the annual interest rate, and n is the number of times interest is compounded in a year.
What is the difference between annual and semi-annual compounding? Annual compounding is when interest is compounded once a year, while semi-annual compounding is when interest is compounded twice a year.
Murali's Investment Conundrum: A Tale of Compound Interest

In our previous article, we explored the world of compound interest and calculated Murali's gain after two years. However, we know that there are many more questions and concerns when it comes to compound interest. In this article, we will address some of the most frequently asked questions and provide additional insights into the world of compound interest.

Q: What is compound interest?

A: Compound interest is the interest earned on both the principal amount and any accrued interest over a period of time. It is a powerful tool for growing investments, but it can also be a source of confusion.

Q: How is compound interest calculated?

A: Compound interest is calculated using the formula A = P(1 + r/n), where A is the amount after n years, P is the principal amount, r is the annual interest rate, and n is the number of times interest is compounded in a year.

Q: What is the difference between annual and semi-annual compounding?

A: Annual compounding is when interest is compounded once a year, while semi-annual compounding is when interest is compounded twice a year. Semi-annual compounding can result in a higher interest rate, but it also requires more frequent calculations.

Q: How does compound interest affect my investment?

A: Compound interest can have a significant impact on your investment. It can help your investment grow faster and more efficiently, but it can also lead to a higher risk of loss if not managed properly.

Q: What are some common mistakes to avoid when dealing with compound interest?

A: Some common mistakes to avoid when dealing with compound interest include:

Not understanding the interest rate and compounding frequency
Not considering the impact of taxes and fees
Not diversifying your investments
Not regularly reviewing and adjusting your investment strategy

Q: How can I maximize my returns with compound interest?

A: To maximize your returns with compound interest, consider the following strategies:

Invest for the long-term
Choose a high-interest rate and compounding frequency
Diversify your investments
Regularly review and adjust your investment strategy
Consider using a compound interest calculator to help you make informed decisions

Q: What are some real-world examples of compound interest in action?

A: Some real-world examples of compound interest in action include:

A savings account that earns 2% interest per year, compounded annually
A certificate of deposit (CD) that earns 5% interest per year, compounded semi-annually
A retirement account that earns 8% interest per year, compounded quarterly

Q: How can I calculate compound interest on my own?

A: To calculate compound interest on your own, you can use the formula A = P(1 + r/n), where A is the amount after n years, P is the principal amount, r is the annual interest rate, and n is the number of times interest is compounded in a year. You can also use a compound interest calculator or spreadsheet to make the calculation easier.

In this article, we addressed some of the most frequently asked questions and provided additional insights into the world of compound interest. We hope that this information has been helpful in understanding compound interest and how it can impact your investments. Remember to always do your research and consult with a financial advisor before making any investment decisions.

Compound interest is the interest earned on both the principal amount and any accrued interest over a period of time.
The formula for compound interest is A = P(1 + r/n), where A is the amount after n years, P is the principal amount, r is the annual interest rate, and n is the number of times interest is compounded in a year.
Annual compounding is when interest is compounded once a year, while semi-annual compounding is when interest is compounded twice a year.
To maximize your returns with compound interest, consider investing for the long-term, choosing a high-interest rate and compounding frequency, diversifying your investments, and regularly reviewing and adjusting your investment strategy.

What is compound interest?
How is compound interest calculated?
What is the difference between annual and semi-annual compounding?
How does compound interest affect my investment?
What are some common mistakes to avoid when dealing with compound interest?
How can I maximize my returns with compound interest?
What are some real-world examples of compound interest in action?
How can I calculate compound interest on my own?