Question

Ashok borrowed Rs. 16,000 at 10% simple interest. He immediately invested this money at 10% compound interest compounded half-yearly. Calculate Ashok's gain in 18 months.

Answer 1

$GivenPrincipal=16000,Rate=16percent$

$FormulaforSimpleInterestis\frac{P\times T\times R}{100}$

$SimpleInterestfor18monthswillbe=16000\times \frac{10}{100}\times \frac{18}{12}=2400$

$Amountwillbe=(16000+2400)=18400$

$FormulaforAmountinCompoundInterestis=P{(1+\frac{r}{100})}^n$

$Whencompoundedhalfyearlyratewillbe\frac{10}{2}=5percentandnwillbe1.5\times 2=3years$

$Amountwhencompoundinterestcompoundedhalfyearlywillbe=16000{(1+\frac{5}{100})}^3$

$Amountis=16000\times 1.157=18522$

Ashoks gain in 18 months will be $18522-18400=Rs122$