Arithmetic Ability
Compound Interest

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Q.

A man invests Rs.5000 for 3 years at 5% 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

View Answer

Correct choice: A

Explanation:

5% is the rate of interest. 20% of the interest amount is paid as tax. i.e 80% of the interest amount stays back. if we compute the rate of interest as 80% of 5% = 4% p.a., we will get the same value. The interest accrued for 3 years in compound interest = 3 x simple interest on principal + 3 x interest on simple interest + 1 x interest on interest on interest. = 3 x (200) + 3 x (8) + 1 x 0.32 =600 + 24 + 0.32 = 624.32 The amount at the end of 3 years = 5000 + 624.32 = 5624.32
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