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Example – 5. A man invests Rs. 5,000 for three years at a certain rate of interest, compounded annually. At the end of one year it amounts to Rs. 5,600. Calculate.

1. The rate of interest per annum
2. The interest accrued in the second year
3. Tthe amount at the end of third year.

Solution :

(i) P = Rs. 5,000, A = Rs. 5,600, T = 1 year

I = A – P = Rs. (5600 - 5000) = Rs. 600

(ii) Principal for the second year = Rs. 5600

(iii) Amount at the end of 2nd year
= Rs. (5600 + 672)
= Rs. 6272
= Principal for third year