Question

Anil borrowed Rs 18000 from Rakesh at 8% per annum simple interest for 2 years. If Anil had borrowed this sum at 8% per annum compound interest, what extra amount would he has to pay?

Answer 1

Given

Money borrowed (P) = Rs 18000

Rate (R) = 8% p.a.

Time (n) = 2 years

Simple Interest = PRT / 100

= Rs (18000 × 8 × 2) / 100

= Rs 2880

In case of compound interest

A = P {1 + (R / 100)}${}^n$

= Rs 18000 {1 + (8 / 100)}${}^2$

= Rs 18000 × (27 / 25)${}^2$

= Rs 18000 × (27 / 25) × (27 / 25)

We get,

= Rs 104976 / 5

= Rs 20995.20

Hence,

Compound interest = Amount – Principal

= Rs 20995.20 – Rs 18000

= Rs 2995.20

Now,

Difference between compound interest and simple interest

= Rs 2995.20 – Rs 2880

= Rs 115.20