Financial Mathematics (Interest, Profit, Loss, and Depreciation)

17 questions

Question 1Question

A trader invested 50,000\text{₦}50,000 in a savings scheme that pays compound interest at a rate of 10%10\% per annum compounded annually. What is the total compound interest earned at the end of 22 years?

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Answer: 10,500\text{₦}10,500

Answer

The total compound interest earned at the end of 22 years is 10,500\text{₦}10,500.
The compound interest is obtained by subtracting the principal from the total accumulated amount. Using A=P(1+r)nA = P(1 + r)^n, the total amount is 60,500\text{₦}60,500. Subtracting the principal of 50,000\text{₦}50,000 yields 10,500\text{₦}10,500.

Step-by-Step Solution

1
Calculate the total accumulated amount using the compound interest formula A=P(1+r)nA = P(1 + r)^n
A=50,000×(1+0.10)2=50,000×1.21=60,500A = 50,000 \times (1 + 0.10)^2 = 50,000 \times 1.21 = \text{₦}60,500
Determines the total value of the investment at the end of the duration.
2
Calculate the compound interest earned using CI=APCI = A - P
CI=60,50050,000=10,500CI = 60,500 - 50,000 = \text{₦}10,500
Subtracts the original principal from the total accumulated amount to find the interest portion.

Key Concept

Compound interest calculation
Question 2Question

A company purchased a processing machine for 200,000\text{₦}200,000. The value of the machine depreciates at a compound rate of 10%10\% per annum. At the end of 22 years, the machine was sold at a profit of 15%15\% based on its depreciated value. What was the selling price of the machine?

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Answer: 186,300\text{₦}186,300

Answer

The selling price of the machine was 186,300\text{₦}186,300.
The depreciated value after 2 years at a compound rate of 10%10\% per annum is calculated as V=200,000×(0.90)2=162,000V = 200,000 \times (0.90)^2 = \text{₦}162,000. Selling the machine at a 15%15\% profit on this depreciated value gives a selling price of 162,000×1.15=186,300162,000 \times 1.15 = \text{₦}186,300.

Step-by-Step Solution

1
Calculate the depreciated value of the machine after 2 years using the compound depreciation formula V=P(1r)nV = P(1 - r)^n.
V=200,000×(10.10)2=200,000×(0.90)2=200,000×0.81=162,000V = 200,000 \times (1 - 0.10)^2 = 200,000 \times (0.90)^2 = 200,000 \times 0.81 = \text{₦}162,000.
Compound depreciation reduces the asset's remaining book value by 10%10\% each year.
2
Calculate the 15%15\% profit based on the depreciated value.
\text{Profit} = 15\% \text{ of } \text{₦}162,000 = 0.15 \times 162,000 = \text{₦}24,300$.
The problem specifies that profit is made on the depreciated value.
3
Calculate the selling price by adding the profit to the depreciated value.
\text{Selling Price} = \text{₦}162,000 + \text{₦}24,300 = \text{₦}186,300$.
Selling price is equal to book value plus profit earned.

Key Concept

Compound Depreciation and Percentage Profit on Book Value
Estimated Time:2m 0s
Question 3Question

An entrepreneur bought a commercial printing machine for 300,000\text{₦}300,000. If the machine depreciates in value at a compound rate of 15%15\% per annum, what is its value in Naira (\text{₦}) at the end of 22 years?

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Answer: 216750

Answer

The value of the machine at the end of 2 years is ₦216,750.
The value of the asset after 2 years is calculated using the reducing balance formula: V2=V0(1r)2=300,000(0.85)2=216,750V_2 = V_0(1 - r)^2 = 300,000(0.85)^2 = \text{₦}216,750.

Step-by-Step Solution

1
Identify given parameters
Initial principal value V0=300,000V_0 = 300,000, annual depreciation rate r=0.15r = 0.15, duration n=2n = 2 years.
Establishing known variables simplifies formula substitution.
2
Apply compound depreciation formula
V2=V0(1r)2=300,000(10.15)2V_2 = V_0(1 - r)^2 = 300,000(1 - 0.15)^2
Asset values decrease multiplicatively per period under compound depreciation.
3
Compute the final depreciated value
V2=300,000×(0.85)2=300,000×0.7225=216,750V_2 = 300,000 \times (0.85)^2 = 300,000 \times 0.7225 = 216,750
Multiplying the initial amount by the combined depreciation factor yields the residual asset value.

Key Concept

Compound Depreciation
Question 4Question

A cooperative society invested 80,000\text{₦}80,000 in a fixed deposit fund that pays compound interest at a rate of 10%10\% per annum compounded annually. What is the total compound interest earned by the cooperative society at the end of 22 years?

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Answer: 16,800\text{₦}16,800

Answer

16,800\text{₦}16,800
Using the compound interest formula for total amount, A=P(1+r100)nA = P\left(1 + \frac{r}{100}\right)^n, with principal P=80,000P = \text{₦}80,000, rate r=10%r = 10\%, and time n=2n = 2 years: A=80000×(1.1)2=96,800A = 80000 \times (1.1)^2 = \text{₦}96,800. The interest earned is the difference between the total amount and the principal: I=9680080000=16,800I = 96800 - 80000 = \text{₦}16,800.

Step-by-Step Solution

1
Calculate the total accumulated amount AA using the compound interest formula A=P(1+r100)nA = P\left(1 + \frac{r}{100}\right)^n
A=80000×(1+10100)2=80000×(1.1)2=80000×1.21=96,800A = 80000 \times \left(1 + \frac{10}{100}\right)^2 = 80000 \times (1.1)^2 = 80000 \times 1.21 = \text{₦}96,800
The formula yields the full final balance after compound growth over 2 years.
2
Subtract the initial principal PP from the total amount AA to find the compound interest earned II
I=AP=9680080000=16,800I = A - P = 96800 - 80000 = \text{₦}16,800
Interest earned represents only the financial growth beyond the starting capital.

Key Concept

Compound Interest and Total Accumulated Amount
Question 5Question

A merchant bought a power generator for 120,000\text{₦}120,000 and sold it to a retailer at a profit of 20%20\%. The retailer later sold the generator to a customer at a loss of 15%15\%. How much did the customer pay for the generator?

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Answer: 122,400\text{₦}122,400

Answer

The customer paid 122,400\text{₦}122,400 for the generator.
The merchant sells the generator for 120%120\% of 120,000\text{₦}120,000, which equals 144,000\text{₦}144,000. The retailer then sells it at 85%85\% of 144,000\text{₦}144,000, yielding 122,400\text{₦}122,400.

Step-by-Step Solution

1
Calculate the selling price of the generator from the merchant to the retailer.
Selling Price1=120,000×(1+20100)=120,000×1.20=144,000\text{Selling Price}_1 = \text{₦}120,000 \times \left(1 + \frac{20}{100}\right) = \text{₦}120,000 \times 1.20 = \text{₦}144,000
The merchant makes a 20%20\% profit on the initial cost price of 120,000\text{₦}120,000.
2
Calculate the selling price from the retailer to the final customer.
Selling Price2=144,000×(115100)=144,000×0.85=122,400\text{Selling Price}_2 = \text{₦}144,000 \times \left(1 - \frac{15}{100}\right) = \text{₦}144,000 \times 0.85 = \text{₦}122,400
The retailer incurs a 15%15\% loss calculated relative to their purchase price of 144,000\text{₦}144,000.

Key Concept

Successive Percentage Profit and Loss
Question 6Question

An artisan deposited 20,000\text{₦}20,000 into a savings account that pays a compound interest rate of 10%10\% per annum compounded annually. What is the total compound interest earned at the end of 22 years?

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Answer: 4,200\text{₦}4,200

Answer

The total compound interest earned after 2 years is 4,200\text{₦}4,200.
The correct answer is obtained by calculating the total amount after 2 years at 10%10\% compound interest, which is 20,000×(1.10)2=24,20020,000 \times (1.10)^2 = \text{₦}24,200, and then subtracting the principal of 20,000\text{₦}20,000 to get 4,200\text{₦}4,200.

Step-by-Step Solution

1
Calculate the total accumulated amount (AA) after 2 years using the compound interest formula A=P(1+R100)nA = P\left(1 + \frac{R}{100}\right)^n.
A=20,000(1+10100)2=20,000×(1.1)2=20,000×1.21=24,200A = 20,000 \left(1 + \frac{10}{100}\right)^2 = 20,000 \times (1.1)^2 = 20,000 \times 1.21 = \text{₦}24,200.
Determines the total value of the investment at the end of the 2-year period.
2
Subtract the principal (PP) from the total accumulated amount (AA) to find the interest earned (I=API = A - P).
I=24,20020,000=4,200I = 24,200 - 20,000 = \text{₦}4,200.
Isolates the interest earned from the initial principal amount.

Key Concept

Compound Interest Calculation
Estimated Time:45s
Question 7Question

A business owner borrowed 150,000\text{₦}150,000 to expand his store at a compound interest rate of 8%8\% per annum, compounded annually. What is the total compound interest he will pay at the end of 2 years?

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Answer: 24,960\text{₦}24,960

Answer

The total compound interest paid at the end of 2 years is 24,960\text{₦}24,960.
The total compound interest is obtained by calculating the interest accrued in each period (12,00012,000 in Year 1 and 12,96012,960 in Year 2) and summing them to get 24,960\text{₦}24,960. Alternatively, using the compound interest formula I=P(1+r)nPI = P(1 + r)^n - P, I=150,000(1.08)2150,000=174,960150,000=24,960I = 150,000(1.08)^2 - 150,000 = 174,960 - 150,000 = \text{₦}24,960.

Step-by-Step Solution

1
Calculate the interest for the first year.
Interest1=8100×150,000=12,000\text{Interest}_1 = \frac{8}{100} \times 150,000 = \text{₦}12,000
Interest in the first year is calculated on the initial principal.
2
Find the principal for the second year.
Principal2=150,000+12,000=162,000\text{Principal}_2 = 150,000 + 12,000 = \text{₦}162,000
Under compound interest, the first year's interest is added to the initial principal.
3
Calculate the interest for the second year.
Interest2=8100×162,000=12,960\text{Interest}_2 = \frac{8}{100} \times 162,000 = \text{₦}12,960
Interest in the second year is calculated on the updated principal.
4
Sum the interest from both years to find the total compound interest.
Total Interest=12,000+12,960=24,960\text{Total Interest} = 12,000 + 12,960 = \text{₦}24,960
The total compound interest is the sum of interest accumulated in each compounding period.

Key Concept

Compound Interest
Estimated Time:1m 30s
Question 8Question

A trader bought a set of solar panels for 160,000\text{₦}160,000. He marked up the cost price by 25%25\% to fix the marked price. During a trade fair, he offered a 10%10\% discount on the marked price. What is his net profit in Naira?

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Answer: 20000

Answer

The net profit made by the trader is ���20,000.
First, find the marked price by adding a 25% markup to the cost price: ₦160,000 × 1.25 = ₦200,000. Next, calculate the selling price after a 10% discount on the marked price: ₦200,000 × 0.90 = ₦180,000. Finally, subtract the cost price from the selling price to find the net profit: ₦180,000 - ₦160,000 = ₦20,000.

Step-by-Step Solution

1
Calculate the marked price
Marked Price = ₦200,000
The marked price is 125% of the original cost price of ₦160,000.
2
Calculate the selling price after discount
Selling Price = ₦180,000
A 10% discount reduces the marked price by ₦20,000.
3
Determine the net profit
Net Profit = ₦20,000
Net profit is the difference between the selling price (₦180,000) and the cost price (₦160,000).

Key Concept

Markup, Discount, and Profit Calculations
Question 9Question

A trader bought a quantity of palm oil. He sold 13\frac{1}{3} of the total quantity at a profit of 20%20\%, 12\frac{1}{2} of the remaining palm oil at a loss of 10%10\%, and the rest of the palm oil at a profit of x%x\%. If his overall profit on the entire transaction was 15%15\%, what is the value of xx?

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Answer: 35

Answer

The value of xx is 3535.
The palm oil is divided into three equal portions of 13\frac{1}{3} each. The first portion contributes 203%\frac{20}{3}\% profit, the second portion contributes a loss of 103%-\frac{10}{3}\%, and the final portion contributes x3%\frac{x}{3}\% profit. Summing these contributions yields 10+x3%\frac{10 + x}{3}\%. Equating this to the target overall profit of 15%15\% gives 10+x=4510 + x = 45, which solves to x=35x = 35.

Step-by-Step Solution

1
Determine the fractional portion of palm oil sold at each stage.
First portion = 13\frac{1}{3}. Remaining after first sale = 113=231 - \frac{1}{3} = \frac{2}{3}. Second portion = 12×23=13\frac{1}{2} \times \frac{2}{3} = \frac{1}{3}. Final portion = 1(13+13)=131 - \left(\frac{1}{3} + \frac{1}{3}\right) = \frac{1}{3}.
Finding the exact fraction of the total quantity sold at each step is necessary to weight their respective profit/loss rates correctly.
2
Formulate the net percentage profit equation.
\text{Net Profit } \% = \left(\frac{1}{3} \times 20\%\right) + \left(\frac{1}{3} \times (-10\%)\right) + \left(\frac{1}{3} \times x\%\right) = \frac{20 - 10 + x}{3}\% = \frac{10 + x}{3}\%
The overall profit percentage is the sum of individual fractional contributions, treating loss as a negative percentage.
3
Set the net profit equal to 15%15\% and solve for xx.
\frac{10 + x}{3} = 15 \implies 10 + x = 45 \implies x = 35
Solving this linear equation gives the required profit percentage for the final portion.

Key Concept

Weighted Average Profit and Loss across fractional components of an asset
Estimated Time:2m 0s
Question 10Question

A businesswoman invested 50,000\text{₦}50,000 in a financial fund. Part of the money was invested at a simple interest rate of 6%6\% per annum, and the remaining part was invested at 8%8\% simple interest per annum. If the total interest earned at the end of 11 year was 3,600\text{₦}3,600, what was the amount, in Naira, invested at the 8%8\% interest rate?

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Answer: 30000

Answer

The amount invested at the 8%8\% interest rate is 30,000\text{₦}30,000.
Setting up the linear equation for annual simple interest gives 0.06(50,000x)+0.08x=3,6000.06(50,000 - x) + 0.08x = 3,600. Simplifying this yields 3,000+0.02x=3,6003,000 + 0.02x = 3,600, which solves to x=30,000x = 30,000. Thus, 30,000\text{₦}30,000 was invested at 8%8\%.

Step-by-Step Solution

1
Define variables for the two investment amounts.
Let xx be the amount in Naira invested at 8%8\%, so (50,000x)(50,000 - x) is the amount invested at 6%6\%.
The total capital of 50,000\text{₦}50,000 is split into two distinct portions.
2
Formulate the total interest expression using the simple interest formula I=P×R×T100I = \frac{P \times R \times T}{100}.
6100(50,000x)+8100x=3,600\frac{6}{100}(50,000 - x) + \frac{8}{100}x = 3,600
The sum of annual interests from both parts equals the total interest earned of 3,600\text{₦}3,600.
3
Expand the terms and solve the linear equation for xx.
3,000+0.02x=3,600    0.02x=600    x=30,0003,000 + 0.02x = 3,600 \implies 0.02x = 600 \implies x = 30,000
Isolating xx yields the exact principal amount allocated to the 8%8\% interest rate.

Key Concept

Simple Interest and Allocation of Principal across Different Interest Rates
Estimated Time:1m 30s
Question 11Question

A farmer bought a motorcycle for 250,000\text{₦}250,000 and later sold it at a profit of 12%12\%. What is the selling price of the motorcycle in Naira?

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Answer: 280000

Answer

The selling price of the motorcycle is ₦280,000.
The cost price of the motorcycle is 250,000\text{₦}250,000. A profit of 12%12\% means an additional 12100×250,000=30,000\frac{12}{100} \times 250,000 = \text{₦}30,000. Adding this profit to the cost price gives a selling price of 250,000+30,000=280,000\text{₦}250,000 + \text{₦}30,000 = \text{₦}280,000.

Step-by-Step Solution

1
Calculate the profit amount in Naira
Profit = ₦30,000
Profit is calculated as 12% of the original cost price of ₦250,000.
2
Determine the final selling price
Selling Price = ₦280,000
Selling price equals cost price plus the profit made.

Key Concept

Percentage Profit and Selling Price
Question 12Question

A logistics firm purchased a commercial delivery van for 800,000\text{₦}800,000. If the value of the van depreciates by 10%10\% in the first year and by 15%15\% in the second year, what is the value of the van at the end of the second year?

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Answer: 612,000\text{₦}612,000

Answer

612,000\text{₦}612,000
To find the remaining value of an asset undergoing successive annual depreciation, multiply the initial cost by each annual retention factor (1r)(1 - r). For Year 1 at 10%10\%, the value retention factor is 0.900.90, making the value 720,000\text{₦}720,000. For Year 2 at 15%15\%, the retention factor is 0.850.85, yielding a final value of 720,000×0.85=612,000\text{₦}720,000 \times 0.85 = \text{₦}612,000.

Step-by-Step Solution

1
Calculate the value of the van at the end of the first year after a 10% depreciation.
Value after Year 1=800,000×(110100)=800,000×0.90=720,000\text{Value after Year 1} = \text{₦}800,000 \times \left(1 - \frac{10}{100}\right) = \text{₦}800,000 \times 0.90 = \text{₦}720,000
Depreciation decreases the principal asset value by the specified percentage.
2
Calculate the value of the van at the end of the second year after a 15% depreciation on the year-one value.
Value after Year 2=720,000×(115100)=720,000×0.85=612,000\text{Value after Year 2} = \text{₦}720,000 \times \left(1 - \frac{15}{100}\right) = \text{₦}720,000 \times 0.85 = \text{₦}612,000
Successive depreciation is compounded on the reduced value at the start of each period.

Key Concept

Successive Asset Depreciation
Question 13Question

A trader deposited 40,000\text{₦}40,000 in a microfinance bank offering compound interest at the rate of 10%10\% per annum, compounded annually. What is the total interest earned by the trader at the end of 22 years?

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Answer: 8,400\text{₦}8,400

Answer

The total interest earned by the trader at the end of 22 years is 8,400\text{₦}8,400.
Using the compound interest formula A=P(1+r)nA = P(1 + r)^n, the total accumulated amount after 2 years is 40,000×(1.1)2=48,40040,000 \times (1.1)^2 = \text{₦}48,400. Subtracting the original principal of 40,000\text{₦}40,000 gives the compound interest earned: 48,40040,000=8,40048,400 - 40,000 = \text{₦}8,400.

Step-by-Step Solution

1
Calculate the total accumulated amount (AA) using the compound interest formula A=P(1+R100)nA = P\left(1 + \frac{R}{100}\right)^n.
A=40,000(1+10100)2=40,000×(1.1)2=40,000×1.21=48,400A = 40,000\left(1 + \frac{10}{100}\right)^2 = 40,000 \times (1.1)^2 = 40,000 \times 1.21 = \text{₦}48,400.
The compound interest formula yields the total value of the investment after 2 years.
2
Subtract the initial principal (PP) from the total accumulated amount (AA) to find the compound interest (II).
I=AP=48,40040,000=8,400I = A - P = 48,400 - 40,000 = \text{₦}8,400.
Interest earned is the difference between total final amount and initial principal.

Key Concept

Calculation of compound interest vs total accumulated amount
Question 14Question

An investor deposited 60,000\text{₦}60,000 into a financial scheme for 22 years at an annual interest rate of r%r\%. If the difference between the compound interest (compounded annually) and the simple interest earned over the 22-year period is 384\text{₦}384, calculate the value of rr.

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Answer: 8

Answer

The interest rate r is 8%
For a two-year investment period, the difference between compound interest (compounded annually) and simple interest equals the interest earned in the second year on the first year's interest, which is P(r100)2P \left(\frac{r}{100}\right)^2. Setting 60,000×r210,000=38460,000 \times \frac{r^2}{10,000} = 384 yields 6r2=3846r^2 = 384, giving r2=64r^2 = 64 and r=8%r = 8\%.

Step-by-Step Solution

1
Express the simple interest for 2 years in terms of r
ISI=1,200rI_{\text{SI}} = 1,200r
Simple interest is calculated directly on the principal amount for the full term.
2
Express the compound interest for 2 years in terms of r
ICI=1,200r+6r2I_{\text{CI}} = 1,200r + 6r^2
Compound interest includes interest earned on the first year's interest.
3
Set up the equation for the difference between compound and simple interest
(1,200r+6r2)1,200r=384    6r2=384(1,200r + 6r^2) - 1,200r = 384 \implies 6r^2 = 384
The difference between CI and SI over 2 years isolates the interest-on-interest component.
4
Solve for r
r=8r = 8
Dividing 384 by 6 gives 64, and taking the principal square root yields 8.

Key Concept

Difference between Compound Interest and Simple Interest for 2 years
Question 15Question

A poultry farmer in Ogun State took a loan of 120,000\text{₦}120,000 from a cooperative society at an annual interest rate of 5%5\%, compounded annually. What is the total interest paid by the farmer at the end of 22 years?

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Answer: 12,300\text{₦}12,300

Answer

The total compound interest paid at the end of 2 years is 12,300\text{₦}12,300.
The total compound interest is determined by calculating the accumulated amount A=120,000×(1.05)2=132,300A = 120,000 \times (1.05)^2 = \text{₦}132,300 and subtracting the original principal of 120,000\text{₦}120,000, yielding 12,300\text{₦}12,300.

Step-by-Step Solution

1
Identify the given values for principal, rate, and time
Principal P=120,000P = \text{₦}120,000, Rate r=5%=0.05r = 5\% = 0.05, Time t=2 yearst = 2\text{ years}
These parameters are required to substitute into the compound amount formula.
2
Calculate the total accumulated amount AA after 2 years
A=P(1+r)t=120,000×(1+0.05)2=120,000×1.1025=132,300A = P(1 + r)^t = 120,000 \times (1 + 0.05)^2 = 120,000 \times 1.1025 = \text{₦}132,300
The compound interest formula yields the total balance including the initial principal.
3
Subtract the initial principal from the total accumulated amount to determine interest
Compound Interest =AP=132,300120,000=12,300= A - P = 132,300 - 120,000 = \text{₦}12,300
Interest is the extra amount generated beyond the original loan amount.

Key Concept

Compound Interest vs Total Accumulated Amount
Estimated Time:1m 30s
Question 16Question

A boutique owner in Enugu borrowed 80,000\text{₦}80,000 to expand her business at an annual interest rate of 15%15\%, compounded annually. If she repays the loan in full after 22 years, what is the total interest she paid on the loan?

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Answer: 25,800\text{₦}25,800

Answer

The total interest paid on the loan after 2 years is 25,800\text{₦}25,800.
The compound interest is calculated year by year. In the first year, the interest paid is 15%15\% of 80,000=12,000\text{₦}80,000 = \text{₦}12,000, raising the balance to 92,000\text{₦}92,000. In the second year, the interest paid is 15%15\% of 92,000=13,800\text{₦}92,000 = \text{₦}13,800. Adding the two yearly interest payments gives 12,000+13,800=25,800\text{₦}12,000 + \text{₦}13,800 = \text{₦}25,800.

Step-by-Step Solution

1
Calculate the interest for the first year.
Interest for Year 1 = 15%15\% of 80,000=15100×80,000=12,000\text{₦}80,000 = \frac{15}{100} \times 80,000 = \text{₦}12,000.
In compound interest, interest for the first period is calculated on the initial principal.
2
Determine the amount at the end of the first year, which becomes the principal for the second year.
Principal for Year 2 = 80,000+12,000=92,000\text{₦}80,000 + \text{₦}12,000 = \text{₦}92,000.
Compound interest adds earned interest to the principal for subsequent period calculations.
3
Calculate the interest for the second year.
Interest for Year 2 = 15%15\% of 92,000=15100×92,000=13,800\text{₦}92,000 = \frac{15}{100} \times 92,000 = \text{₦}13,800.
Interest in year 2 is computed on the updated principal balance of 92,000\text{₦}92,000.
4
Sum the interest amounts from both years to find total interest paid.
Total Interest = 12,000+13,800=25,800\text{₦}12,000 + \text{₦}13,800 = \text{₦}25,800.
The total interest is the sum of interest accumulated across each compounding period.

Key Concept

Compound Interest Calculation
Estimated Time:1m 30s
Question 17Question

A cooperative society in Akure granted a loan of 160,000\text{₦}160,000 to a farmer at an interest rate of 12%12\% per annum, compounded annually. What is the total compound interest owed at the end of 22 years?

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Answer: 40,704\text{₦}40,704

Answer

The total compound interest owed at the end of 2 years is 40,704\text{₦}40,704.
The compound interest is obtained by calculating the accumulated amount A=160,000×(1.12)2=200,704A = 160,000 \times (1.12)^2 = \text{₦}200,704 and then subtracting the principal of 160,000\text{₦}160,000 to get 40,704\text{₦}40,704.

Step-by-Step Solution

1
Identify the given financial variables
Principal P=160,000P = \text{₦}160,000, Rate R=12%R = 12\%, Time n=2n = 2 years.
Establishing the parameters needed for the compound interest formula.
2
Calculate the total accumulated amount AA using the formula A=P(1+R100)nA = P\left(1 + \frac{R}{100}\right)^n
A=160,000×(1+0.12)2=160,000×(1.12)2=160,000×1.2544=200,704A = 160,000 \times \left(1 + 0.12\right)^2 = 160,000 \times (1.12)^2 = 160,000 \times 1.2544 = \text{₦}200,704.
Determines the total value of the loan including principal and accrued compound interest after 2 years.
3
Subtract the principal PP from the total amount AA to find the compound interest CICI
CI=AP=200,704160,000=40,704CI = A - P = 200,704 - 160,000 = \text{₦}40,704.
Isolates the interest portion from the total accumulated balance.

Key Concept

Compound Interest Calculation
Financial Mathematics (Interest, Profit, Loss, and Depreciation) Practice Questions — JAMB UTME | Examkin