A man invests Rs. 6000 for 3 years at 8% p.a. compound interest reckoned yearly. Income tax at the rate of 20% on the interest earned is deducted at the end of each year. Find the amount at the end of the third year.
A man invests Rs. 6000 for 3 years at 8% p.a. compound interest reckoned yearly. Income tax at the rate of 20% on the interest earned is deducted at the end of each year. Find the amount at the end of the third year.
1). Rs. 7125.42
2). Rs. 7546.8
3). Rs. 6792.6
4). Rs. 7227.3
1 answers
Now the formula for compound interest can be given as
CI = P(1 + R/100)t - P
Where CI = Compound Interest
P = Principal
R = Rate of interest
T = Time period
In our case the interest earned at the end of first year can be given as
CI = 6000(1.08)1-6000
CI = Rs. 480
Income tax @20% is deducted on the interest earned
∴ 480 × 0.2 = 96
∴ Amount at the end of first year = 6000 + 480-96 = 6384
Now the amount at the end of first year is taken as principal at the beginning of second year
∴ Interest earned at the end of second year
CI = 6384(1.08) - 6384 = Rs. 510.72
Income tax deducted = 510.72 × 0.2 = 102.144
∴ Amount at the end of second year = 6384 + 510.72 - 102.144 = 6792.576
Interest earned at the end of third year
CI = 6792.576(1.08) - 6792.576 = 543.40
Income tax deducted = 543.40 × 0.2 = 108.68
∴ Amount at the end of third year = 6792.576 + 543.4 - 108.68 = 7227.296