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What is the difference between compound interest and simple interest for the sum of Rs. 20,000 over a 2 year period if the compound interest is calculated at 20% and simple interest is calculated at 23%?
- a)Rs. 400
- b)Rs. 460
- c)Rs. 440
- d)Rs. 450
Correct answer is option 'A'. Can you explain this answer?
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Calculation of compound interest and simple interest:
Firstly, let us calculate the compound interest for the given sum of Rs. 20,000 at a rate of 20% over a period of 2 years.
Compound Interest formula: A = P(1 + R/100) ^ n
Where,
A = Final amount
P = Principal amount
R = Rate of interest
n = Number of years
Here, P = Rs. 20,000, R = 20% and n = 2
A = 20000(1 + 20/100) ^ 2
A = 20000(1.2) ^ 2
A = 20000(1.44)
A = Rs. 28,800
Compound Interest = A - P
= 28,800 - 20,000
= Rs. 8,800
Now, let’s calculate the simple interest for the given sum of Rs. 20,000 at a rate of 23% over a period of 2 years.
Simple Interest formula: SI = (P * R * n) / 100
Where,
SI = Simple Interest
P = Principal amount
R = Rate of interest
n = Number of years
Here, P = Rs. 20,000, R = 23% and n = 2
SI = (20000 * 23 * 2) / 100
SI = (4600 * 2)
SI = Rs. 9,200
Difference between Compound Interest and Simple Interest:
The difference between Compound Interest and Simple Interest = Compound Interest - Simple Interest
= 8,800 - 9,200
= -400
Since the difference is negative, we take its absolute value which is Rs. 400.
Therefore, the difference between the compound interest and simple interest for the given sum of Rs. 20,000 over a 2 year period, when the compound interest is calculated at 20% and simple interest is calculated at 23%, is Rs. 400.
Firstly, let us calculate the compound interest for the given sum of Rs. 20,000 at a rate of 20% over a period of 2 years.
Compound Interest formula: A = P(1 + R/100) ^ n
Where,
A = Final amount
P = Principal amount
R = Rate of interest
n = Number of years
Here, P = Rs. 20,000, R = 20% and n = 2
A = 20000(1 + 20/100) ^ 2
A = 20000(1.2) ^ 2
A = 20000(1.44)
A = Rs. 28,800
Compound Interest = A - P
= 28,800 - 20,000
= Rs. 8,800
Now, let’s calculate the simple interest for the given sum of Rs. 20,000 at a rate of 23% over a period of 2 years.
Simple Interest formula: SI = (P * R * n) / 100
Where,
SI = Simple Interest
P = Principal amount
R = Rate of interest
n = Number of years
Here, P = Rs. 20,000, R = 23% and n = 2
SI = (20000 * 23 * 2) / 100
SI = (4600 * 2)
SI = Rs. 9,200
Difference between Compound Interest and Simple Interest:
The difference between Compound Interest and Simple Interest = Compound Interest - Simple Interest
= 8,800 - 9,200
= -400
Since the difference is negative, we take its absolute value which is Rs. 400.
Therefore, the difference between the compound interest and simple interest for the given sum of Rs. 20,000 over a 2 year period, when the compound interest is calculated at 20% and simple interest is calculated at 23%, is Rs. 400.
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What is the difference between compound interest and simple interest for the sum of Rs. 20,000 over a 2 year period if the compound interest is calculated at 20% and simple interest is calculated at 23%?a)Rs. 400b)Rs. 460c)Rs. 440d)Rs. 450Correct answer is option 'A'. Can you explain this answer?
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