Compound interest is the adding of interest to the principal sum of a loan or deposit. The rate of percentage per annum compound interest is 4%.
What is compound interest?
Interest on interest, or compound interest, is the adding of interest to the principal sum of a loan or deposit. It's the outcome of reinvesting interest rather than paying it out so that interest is received on the principal plus previously collected interest in the next quarter.
[tex]A = P(1+ \dfrac{r}{n})^{nt}[/tex]
where A is the final amount
P is the principal amount
r is the rate of interest
n is the number of times interest is charged in a year
t is the number of years
Given the principal amount is 2,500, the time period for which the amount is compounded is 4%. Also, the final amount is 2704.
2,704 = 2,500(1+R)²
1.04 = 1 + R
R = 0.04 = 4%
Hence, the rate of percentage per annum compound interest is 4%.
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