Question 108

What will be the difference between the compound interest and simple interest at the rate of 5 p.c.p.a on an amount of Rs 4,000 at the end of two years ?

Solution

The difference would be the interest earned in the second year on the interest accrued in the first year.

Interest earned in 1st year = 4000 * 5% * 1= 200

Interest earned on 200 in 2nd year = 200 * 5% * 1 = Rs 10

Hence, the difference is Rs 10.

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