Question 129

Simple interest on a sum for 4 years at 7 p.c.p.a. is Rs. 3584. What would be the compound interest compounded annually on the same amount of money for 2 years at 4 p.c.p.a. ?

Solution

Simple interest = $$\frac{P*R*T}{100}$$ , where P is the principal, t is time period and r is rate of interest.

Principal = $$\frac{Simple Interest*100}{R*T}$$ = $$\frac{3584*100}{4*7}$$ = $$12800$$

compound interest = $$P\left(1 + \frac{r}{100}\right)^{t} - P$$ = $$12800*(\frac{100 + 4}{100})^2 - 12800$$

= $$12800*1.04*1.04 - 12800 = 13844.48-12800 = 1044.48$$

Option E is the right answer.

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