Question 87

What is the difference between the maturity value of two deposits of Rs.5,000 each invested for 2 years (i) at 5% simple interest and (ii) at the same interest compounded annually?

Solution

maturity value at compound interest

compound interest = $$P(1+\frac{R}{100})^n$$

=$$5000(1+\frac{5}{100})^2$$

= $$ 5000 \times (\frac {21}{20})^2$$

= $$ 900 \times (\frac {11}{10}) \times (\frac {11}{10})$$

=Rs5512.5

maturity value at simple interest

= 5000 + $$\frac{P\times R\times T}{100}$$

= 5500

difference = 5512.5 - 5500= 12.5

Rs 12.50

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