rajan borrowed ₹5000 at 8%p.a. for 3 years . Find the difference between compound interest and simple interest ,assuming compounded annually
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p = 5000, n = 3, r = 8
When interest is calculated on simple interest,
S.I. = pnr/ 100
= (5000 × 3 × 8) / 100
= 1200
When interest is calculated on compound interest,
A = p (1+r)^n
= 5000 ( 1 + 0.08) ^3
= 5000 ( 1.08 ) ^ 3
= 5000 ( 1.25
= 6250
Interest = 6250 - 5000 = 1250
Compound interest- Simple interest
= 1250 - 1200
= 50
When interest is calculated on simple interest,
S.I. = pnr/ 100
= (5000 × 3 × 8) / 100
= 1200
When interest is calculated on compound interest,
A = p (1+r)^n
= 5000 ( 1 + 0.08) ^3
= 5000 ( 1.08 ) ^ 3
= 5000 ( 1.25
= 6250
Interest = 6250 - 5000 = 1250
Compound interest- Simple interest
= 1250 - 1200
= 50
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