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    Question

    A person invested Rs. 75,000 at an annual compound

    interest rate of 12%, compounded annually for 12 months. How much more profit would he have earned if the interest had been compounded semi-annually instead of annually?
    A Rs. 360 Correct Answer Incorrect Answer
    B Rs. 270 Correct Answer Incorrect Answer
    C Rs. 150 Correct Answer Incorrect Answer
    D Rs. 420 Correct Answer Incorrect Answer

    Solution

    Amount = Principal x {1 + (Rate/100)}T Interest earned when interest is compounded annually = 75000 x 1.12 - 75000 = Rs. 9,000 When compounding semi-annually: Rate of interest = 12 ÷ 2 = 6% p.a. And, effective terms = 2 terms, where each term consist of 6 months So, Interest earned when interest is compounded semi-annually = 75000 X 1.062 - 75000 = Rs. 9,270 So, required difference = 9270 - 9000 = Rs. 270

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