Sandeep deposited 25000 rupees in a bank which pays 8% interest compounded annually. How much would he get back after two years?

In simple interest, interest charge on investment or principal money.

In Compound Interest, Interest charge on principal + Accumulated Interest.

Balance after completing 1 years=Balance in the starting + interest after 1 years

For calculating Interest =

First Year’s balance= 25000Rs

First Year’ Interest =

= 2000

Now, balance after the first year= First Year’s balance +First Year’s Interest

= 25000+2000

= 27000Rs

Second Year’s Balance= 27000Rs

Second Year’s Interest=

= 2160Rs

Balance after the second year = Second Year’s Balance + Second Year’s Interest

= 27000+2160

= 29160Rs

In this question we were calculating compound interest, as I mention above interest charge on principal or investment. As you can see I am adding interest in principal value to calculate next year interest.