QQuestion
Calculate the difference between compound interest and simple interest on Rs. 20,000 for 2 years at 5% per annum.
✓Answer
Principal (P) = ₹ 20,000
Rate (r) = 5% p.a.
Time (t) = 2 years
Simple Interest (SI) = \text{P × r × t} \over 100
= 20,000 × 5 × 2 \over 100
= ₹ 2,000
Compound Interest (annual compounding) = P[(1 + {r\over100})² − 1]
= 20,000[(1 + {5\over100})² − 1]
= 20,000[({105\over100})² − 1]
= 20,000 × (11025\over10000 − 1)
= 20,000 × (11025 - 10000\over10000)
= 20,000 × (1025\over10000)
= ₹ 2,050
∴ Difference (CI − SI) = 2,050 − 2,000 = ₹ 50
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