A principal of ₹ 40,000 is compounded annually at the rate of 10% for 2 years. Find the compound interest earned and is it greater than the simple interest earned at the same rate and for the same time period.
Given, Principal, P =₹ 40,000Time, T =2 years Rate of interest, R=10%
We know that,
for a principal P, rate of interest R and time n years,
amount, A =P[1+R100]n
So,
A=₹ 40,000[1+10100]2
A=₹ 40,000×110100×110100
= ₹ 40,000 x 1.1 x 1.1
= ₹ 48,400
Therefore, Compound interest
= Amount - Principal
= ₹ (48,400 - 40,000)
= ₹ 8,400
Simple interest =P×R×T100
=40,000×10×2100
= ₹ 8,000
Therefore, the compound interest earned is greater than the simple interest earned at the same rate and for the same time.