Question

the difference between the compound interest compound annually and simple interest on a certain sum for 2 years at 4 per annum is rupees 20 find the sum

Answer 1

Compound interest accumulation factor :

(1 + i)ⁿ × P

P = principle amount

I = interest rate

n = Time in years

let p be the principle amount:

P (1. 04)² = 1.0816p

Interest = 1.0816p - p

= 0.0816p

Simple interest factor :

Principle × rate × time = interest

p × 0.04 × 2 = 0.08p

0.0816 p - 0. 08p = 0.0016p

0.0016p = 20

P = 12500