Compound interest · solved example
Find the difference between the compound interest and the simple interest on Rupees 20,000 at 10% per annum for 2 years, compounded annually.
- Rupees 180
- Rupees 200Correct
- Rupees 210
- Rupees 220
- Rupees 240
Solution
Simple interest = 20000 x 10 x 2 / 100 = 2000 x 2 = 4000. For compound interest, the amount is 20000 x 1.1 x 1.1 = 24200, so the interest is 4200. The difference is 200. There is a shortcut worth memorising: for 2 years the difference is P x r squared over 100 squared, which here is 20000 x 100 / 10000 = 200.