Question

A principal of Rs. 40,000 is compound 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 at the same time?

• A. 48400, yes
• B. 48000, yes
• C. 47000, no
• D. 48400, no

Answer 1

The correct option is A

48400, 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 $A_1$ = $40,000\times \frac{10}{100}=Rs.(4,000+40,000)=Rs.44,000$
Similarly $A_2=44,000\times \frac{10}{100}=Rs.(44,000+4400)=Rs.48,400$

So, CI after 2 years = $Rs.48,400-Rs.40,000=Rs.8400$

$SI=\frac{P\times N\times R}{100}$ = $\frac{40,000\times 10\times 2}{100}=Rs.8,000$

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