Find the compound interest on Rs. 16,000 at 20% per annum for 9 months, compounded quarterly.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 2,522
When interest is compounded quarterly, each quarter of a year is one period: the yearly rate is shared among the four quarters, and the amount grows by that quarterly rate once in every quarter.
Rate per quarter: \(\displaystyle\frac{20\%}{4}=5\%\); number of quarters in 9 months: 3
Amount \(=16000\times(1.05)^{3}=16000\times1.157625=18522\)
Compound interest \(=18522-16000=2522\), that is, Rs. 2,522