Question
Find the difference between compound interest and simple
interest on Rs 5,000 for 2 years at 8% per annum (compounded annually).Solution
Simple Interest (SI): SI = (P × R × T) / 100 = (5,000 × 8 × 2) / 100 = (5,000 × 16) / 100 = 80,000 / 100 = Rs 800 Compound Interest (CI): Amount A = P(1 + R/100)² = 5,000 × (1 + 8/100)² = 5,000 × (1 + 2/25)² = 5,000 × (27/25)² = 5,000 × (729/625) First divide 5,000 by 625: 5,000 ÷ 625 = 8 So A = 8 × 729 = 5,832 CI = A − P = 5,832 − 5,000 = Rs 832 Difference = CI − SI = 832 − 800 = Rs 32 Answer: Rs 32
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