Question

A man invests Rs 3,20,000 for 2 years at 12.5% p.a. compounded annually.
If the income tax at the rate of 20% is deducted at the end of each year, on interest accrued, find the amount he received at the end of 2 years.

Answer 1

interest after 1st year = 320000(.125) = 40000
but he can keep only 80% of that, or .8(4000) = 32000
so he has 320000+32000 = 352000

interest after 2nd year = .125(352000 = 44000
but he can keep only 80% of that or .8(44000) = 35200

So at the end of 2 years he has 352000 + 35200 = 387200



If you had to do this for a longer time, say 10 years, this method would be quite tedious,
Here is another way::::
His interest rate is 12.5%, but this is reduced by 20% , leaving him with .125(.8) or .1 or 10%

so it would be just like getting 10% on your money
One step:
after 2 years he has
320000(1.1)^2 = 387200 , same as above.