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 the same time?

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

Answer 1

The correct option is A

Rs. 8400, yes

According to question, interest is only for 2 years

Principal, $P=Rs.40,000$

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 48,400

Sinple interest =$\frac{P\times r\times t}{100}$ = $\frac{40,000\times 10\times 2}{100}$ = Rs, 8,000

$\Rightarrow$ Amount = Rs. 48,000

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