Respuesta :
Compounding is a process where the interest is credited to the initial amount and interest, on the whole, is charged again. The price of the loaf of bread after 20 years will be 2.53.
What is compounding?
Compounding is a process where the interest is credited to the initial amount and interest, on the whole, is charged again. And this continues for t period of time.
It is given by the formula,
A = P(1+r)ⁿ
where A is the value after n period of time, P is the initial amount, and,
r is the rate of increment or decrement.
Given that a loaf of bread costs Rs.0.79 today, and its price increases by 6% per year. Therefore, the price of bread will increase every year by 6% of the previous year's cost. Thus, it can be concluded that the price increases compounding.
Therefore, the equivalent loaf cost in 20 years will be,
Cost of the loaf after 20 years = 0.79(1+0.06)²⁰
= 0.79(3.2071)
= 2.53
Hence, the price of the loaf of bread after 20 years will be 2.53.
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