Saturday, April 18, 2009

CI

We all know the traditional formula to compute interest...
CI = P*(1+R/100)^N - P

The calculation get very tedious when N>2 (more than 2 years). The method suggested below is easier way to get CI/Amount after 'N' years.

You need to recall the Pascal's Triange which wold look like this:




Example: P = 1000, R=10 %, and N=3 years. What is CI & Amount?

Now Amount after 3 years = 1 * 1000 + 3 * (10% of 1000) + 3 * (10% of 100) + 1 * 1*(10% of 10) = Rs.1331/-
The coefficents - 1,3,3,1 are taken from the pascal's triangle where n=3.

 
CI after 3 years = 3*100 + 3*10 + 3*1 = Rs.331/- (leaving out first term in prevoius step)

If N =2, we would have had, Amt = 1 * 1000 + 2 * 100 + 1 * 10 = Rs. 1210/-
CI = 2 * 100 + 1* 10 = Rs. 210/-

This method is extendable for any 'N' and it avoids calculations involving higher powers on 'N' altogether!