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      Question

      A financial institution gives compound interest at the rate

      of 10% per annum, compounded half yearly. What is the interest earned after one year on a deposit of Rs. 40000?
      A 4100 Correct Answer Incorrect Answer
      B 4580 Correct Answer Incorrect Answer
      C 3570 Correct Answer Incorrect Answer
      D 5200 Correct Answer Incorrect Answer

      Solution

      ATQ,


      Effective rate of interest = 10 × (6/12) = 5%

      Effective time or number of terms = 2 half-years

      Amount received at compound interest = sum invested × {1 +
      (rate/100)}^number of terms

      Or, amount received = 40000 × {1 + (5/100)}^2

      = 40000 × (105/100) × (105/100) = Rs. 44100

      Therefore, interest earned = 44100 - 40000 = Rs. 4100

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