Question

the difference between compound interest and simple interest on a sum
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Answer 1

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• TheSimple Interest after three years @ 10% is 30%. The Compound Interest after 3 years @ 10% will be 1.1 × 1.1 × 1.1 = 1.331  Cumulative rate of Interest is 33.1%.

Answer 2

On a certain sum, the difference between compound interest and simple interest at 5% per annum for 3 years is Rs 15.25. Find the sum?

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I was asked this question once, I will solve this question without creating formula dependency:

Do you understand the concept of SI & CI very clearly ? If not let’s have a quick look.

If you invest 100 rs at 10% ROI in both SI & CI, what will be the amount after 3 years.

SI(10%) - 100——110——120———130

CI(10%)- 100——110——121———133.1

Just have a look there is a difference of Rs/- 3.1 after 3 years between SI & CI. Examine how did you get this difference. Let’s see.

130= 100+10+10+10 (This amount is [Principal + 3(Interest on Principal)]

133.1= 100+10+10+10+1+1+1+0.1 ( This amount is [Principal + 3 (Interest on Principal) + 3(Interest on Interest) + Interest on Interest on Interest] )

Now see it’s clear that you are getting this difference because in compound interest you are getting two things extra i.e 3 times interest on interest + interest on interest on interest.

So you know that if Rate is constant for three years, interest on interest will be equal 3 times and then you get interest on interest on interest.

Let’s solve the problem.

Difference is 15.25 , 15.25 = 5+5+5+0.25 (I did this because I know this difference is because of the extra interest I am getting on Interest and that needs to equally distributed 3 times)

Now you know 5% of S.I = 5 , S.I = 100

If S.I is 100, you can say 5% of some principal = 100, Principal/sum= 2000.

This might look lengthy and confusing but it is one of the easiest method to solve such problems, I would suggest the reader to solve this while reading this answer.

hope it helps ❤️