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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?


  1. Rs. 8400, yes

  2. Rs. 8400, no

  3. Rs. 8000, yes

  4. Rs. 7000, no


Solution

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 1st year is A1 = 40,000×10100= Rs (4,000 + 40,000) = Rs. 44,000
Similarly A2=44,000×10100 = Rs 48,400

Sinple interest =P×r×t100 = 40,000×10×2100 = Rs, 8,000 

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.

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