Three years ago, Beeru purchased a buffalo from Surjeet for Rs 11000.

Question:

Three years ago, Beeru purchased a buffalo from Surjeet for Rs 11000. What payment will discharge his debt now, the rate of interest being 10% per annum, compounded annually?

Solution:

Principal amount, $P=$ Rs. 11000

Rate of interest, $R=10 \%$ p. a.

Time, $n=3$ years

The amount including the compound interest is calculated using the formula,

$A=$ Rs. $P\left(1+\frac{R}{100}\right)^{n}$

$=$ Rs. $11000\left(1+\frac{10}{100}\right)^{3}$

$=$ Rs. $11000\left(\frac{100+10}{100}\right)^{3}$

$=$ Rs. $11000\left(\frac{110}{100}\right)^{3}$

$=$ Rs. $11000(1.1)^{3}$

$=$ Rs. $11000(1.1 \times 1.1 \times 1.1)$

$=$ Rs. 14641

Therefore, Beeru has to pay Rs 14641 to clear the debt.

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