Question

Find the difference between compound interest and simple interest on rs 4000 for 1 yr at 10%p.A if the interest is componunded half yearly

Answer 1

The formulas are as follows:

Simple interest = Principle × rate/100 × time

Compound interest = Principle × (1 + i)ⁿ - Principle

Since the compounding is done semiannually the n or rather the time in both cases will be given by :

2n

Simple interest = 4000 × 10/100 × 2 = 80

Compound interest:

4000(1.10)² - 4000

= 4840 - 4000 = 840

The difference is therefore given by :

840 - 80 = 760

The answer is therefore :

= Rs 760