Compound Interest – Maturity amount over 2 years: Vandana invests ₹ 8,000 in a fixed deposit for 2 years at 5% per annum, compounded annually. What total maturity amount will she receive at the end of 2 years?

Introduction / Context:Fixed deposits commonly use compound interest. The maturity amount for annual compounding is found by multiplying the principal by (1 + r)^t, where r is the annual rate and t is time in years.

Given Data / Assumptions:

• Principal P = ₹ 8,000
• Annual rate r = 5% = 0.05
• Time t = 2 years
• Compounding frequency = yearly (once per year)

Concept / Approach:For yearly compounding: Amount A = P * (1 + r)^t. Interest is automatically added to the base each year, so the second year earns interest on the first year’s interest as well (the hallmark of compounding).

Step-by-Step Solution:A = 8000 * (1 + 0.05)^2A = 8000 * (1.05)^2 = 8000 * 1.1025A = ₹ 8,820

Verification / Alternative check:Year-wise: End of Year 1 = 8000 * 1.05 = 8400. End of Year 2 = 8400 * 1.05 = 8820. Matches the direct formula.

Why Other Options Are Wrong:₹ 8890 and ₹ 8888 imply incorrect rounding or rates; ₹ 8000 ignores interest entirely.

Common Pitfalls:Using simple interest formula P * r * t or forgetting to apply the exponent on (1 + r).

Final Answer:₹ 8820