- 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.
(1) 5624.32 (2) 5630.50 (3) 5788.125 (4) 5627.20
Solution:
5% is the rate of interest. 20% of the interest amount is paid as tax. That is
80% of the interest amount stays back. Therefore, 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*simple interest on
principal + 3*interest on simple interest + 1*interest on interest on interest.
= 3*(200) + 3*(8) + 1*0.32 = 600 + 24 + 0.32 = 624.32
The amount at the end of 3 years = 5000 + 624.32 = 5624.32
