A man invests Rs. 5000 for 3 years at 5% p.a. compounded 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 third year.Choices:- Rs. 4800 Rs. 3600 Rs. 5624 Rs. 4530
Question
A man invests Rs. 5000 for 3 years at 5% p.a. compounded 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 third year.Choices:- Rs. 4800 Rs. 3600 Rs. 5624 Rs. 4530
Solution
To solve this problem, we need to understand the concept of compound interest and income tax deduction on the interest earned. Here are the steps:
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Calculate the interest for the first year: Interest = Principal * Rate * Time = 5000 * 5/100 * 1 = Rs. 250
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Deduct the income tax on the interest earned: Tax on interest = Interest * Tax rate = 250 * 20/100 = Rs. 50
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Subtract the tax from the interest to get the net interest for the first year: Net interest = Interest - Tax on interest = 250 - 50 = Rs. 200
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Add the net interest to the principal to get the amount at the end of the first year: Amount = Principal + Net interest = 5000 + 200 = Rs. 5200
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Repeat steps 1 to 4 for the next two years, but use the amount at the end of the previous year as the new principal.
After doing these calculations for three years, you will find that the amount at the end of the third year is Rs. 5624. So, the correct choice is Rs. 5624.
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