Question

Ganesh invested Rs 40,000 in a bank at 8 p.c.p.a compound interest for 2 years. What would be the difference in the interest earned if he invests the same amount for the same period but for simple interest at the same rate?

Answer 1

Principal = Rs 40,000
Rate of interest= 8% p.a.
Number of years = 2
Amount$=\mathrm{P}{\left(1+\frac{\mathrm{R}}{100}\right)}^{\mathrm{N}}=40000{\left(1+\frac{8}{100}\right)}^2=\mathrm{Rs}.46,656$
The amount is Rs 43,200.
Compound Interest = Amount − Principal = Rs( 46,656 − 40,000) = Rs 6,656
∴ Compound interest = Rs 6,656
Simple Interest$=\frac{\mathrm{Principal}\times \mathrm{Rate}\times \mathrm{Time}}{100}=\frac{40000\times 8\times 2}{100}=\mathrm{Rs}6,400$
Difference between compound Interest and simple interest= Compound Interest − Simple Interest
= Rs (6,656− 6,400) = Rs 256