Question
An amount of Rs. 20,000 is invested at 10% per annum.
What will be the difference between the compound interest (compounded annually) and simple interest on this sum at the end of 2 years?Solution
Simple Interest for 2 years: SI = (20,000 × 10 × 2) / 100 = 4,000 Compound Interest for 2 years: Amount = 20,000 × (1.10)² = 20,000 × 1.21 = 24,200 CI = 24,200 − 20,000 = 4,200 Difference = 4,200 − 4,000 = 200
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