Sara borrowed Rs 18000 at 10% per annum simple interest for 2 years. Rakesh borrowed the same amount for the same time period at 10% per annum, compounded annually. Who pays more interest and by how much
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Answer:
Rakesh = 3780
Sara = 3600
Step-by-step explanation:
Sara = Simple Interest
Simple Interest Formula = P x R x T / 100
Therefore 18000 x 10 x 2 / 100
=> 360000 / 100
=> 3600
=> Simple interest = 3600
Rakesh = Compound Interest
Compound Interest Formula = P(1 + R/100)^T
Therefore
= 18000 (1 + 10/100)^2
= 18000 ( 100/100 + 10/100)^2
= 18000 ( 110/100)^2
= 18000 x 110/100 x 110/100
= 18000 x 11/10 x 11/10
= 18000 x 1.1 x 1.1
= 21780
= 21780 - 18000 = 3780
Rakesh pays 3780 interest and Sara pays 3600
3780 > 3600
Therefore rakesh pays more
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