COMPOUND INTEREST

INTRODUCTION

•  How many of you have been to bank with your parents?
•  What have you observed in bank?
• What is the main purpose of bank?
• Why we need to deposit money in bank?   
• We could also keep it in our home.Why the need?
• What is the reason behind depositing money in bank ?

Simple interest:

When interest is paid only on the principle alone is known as simple interest.

formulas for simple interest

COMPOUND INTEREST:

The interest which is paid on the principle as well as on the accured interest is called as compound interest.

Explanation:

• Consider vinay has borrowed Rs.50,000 from bank with 4% rate of interest for two years.
• Vinay has to pay Rs.2000 as interest in the first year.
• If he couldn’t pay it then the interest  will be added to the principle i.e. Sum = principle + interest
• Sum = Rs.50000+ Rs.2000 = Rs.52000.
• Now vinay has to pay interest in the second year with Rs.52000 as new principle.
•  This way of calculating interest is known as compound interest.

Types of compound interest:

When compounded quarterly:

When compounded half-yearly:

When compounded annually:

Problem for example:

DIFFERENCE BETWEEN SI AND CI:

Real life applications:

These are some features which gives profit

•      Provident fund

•      Bank deposits

Negative features

•      Credit card bills

•      Loans

CONCLUSION: