Question

A sum of Rs.1,50,000 amounts to Rs. 2,62,500 at a certain
rate of simple interest in 5 years, find the sum of money that
amounts to Rs. 1,98,375 at the same rate of compound interest in
2 years.

Answer 1

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Step-by-step explanation:

The total interest over 5 years amounts to Rs. 112,500 (i.e. 262,500 - 150,000) meaning that annual interest is Rs. 22,500 (112,500 / 5 )

This means that the simple interest rate is 15% ( 22,500 / 150,000 x 100)

Now we can calculate the amount of money which compounds to Rs. 198,375 at 15% after 2 years using present value formula as follows:

Present value = Amount x (1 + rate) ^ - period

Present value = 198375 x ( 1 + 0.15) ^ -2

PV = Rs. 150,000

So an amount of Rs. 150,000 becomes Rs. 198,375 after compounding of 2 years at 15%.