Question

A principal of ₹40,000 is compounded annually at the rate of 10% for 2 years. What is the compound interest and is it greater than the simple interest for the same rate and the same time?

• A. ₹8400, yes
• B. ₹8000, yes
• C. ₹7000, no
• D. ₹8400, no

Answer 1

The correct option is A

₹8400, yes

According to the question, interest is only for 2 years.

P = 40,000

In compound interest, interest is calculated annually.
Amount after $1^{st}$ year is $A_1$ = $40,000\times \frac{10}{100}$= ₹ (4,000 + 40,000) = ₹44,000
Similarly, $A_2=44,000\times \frac{10}{100}$ = ₹48,400

SI =$\frac{PRT}{100}$ = $\frac{40,000\times 10\times 2}{100}$ = ₹8,000

Amount = ₹48,000

The simple interest is ₹8000 and compound interest is ₹8400. Therefore, compound interest is greater than the simple interest.