Essay frame

Rs. 100,000 is invested for 2 years at 12% a year. Find the amount under (a) simple interest, (b) yearly, (c) quarterly and (d) monthly compounding. Comment on the results.

How to lay out the answer. Follow the frame, then write it in your own words.

1 · Simple interest. A = 100,000(1 + 0.12 × 2) = Rs. 124,000.
2 · Yearly compounding. A = 100,000 × 1.12² = Rs. 125,440.
3 · Quarterly. i = 0.03, n = 8: A = 100,000 × 1.03⁸ = Rs. 126,677.01.
4 · Monthly. i = 0.01, n = 24: A = 100,000 × 1.01²⁴ = Rs. 126,973.46.
5 · Tabulate. Put the four amounts in a table, lowest to highest.
6 · Comment. More frequent compounding means interest earns interest sooner, so the amount rises; the effective rate is above the nominal 12%.
7 · Business link. When choosing a deposit, compare the effective annual rates of each bank's offer.