Principal for the first year = Rs. 20,000, rate = 5%, T = 1 year.
Interest for the first year =20,000×1×5100=Rs.1,000 (using simple interest formula I=P×T1×R100).
Principal for the second year = Rs. 20,000+1,000=Rs. 21,000.
Interest for the second year =21,000×5100=Rs.1,050
Amount after 2 years = Rs. 21000 + 1050 = Rs. 22,050.
Compound interest = amount - principal = Rs. 22,050 - Rs. 20,000 = Rs. 2,050.
Hence the compound interest after 2 years is Rs. 2,050.
Simple interest on Rs. 20,000 for 2 years at the rate of 5% is
I=20000×2×5100=Rs.2,000.