Question

What will be the approximate difference in the simple and compound interest accrued on an amount of rs 2600/- at the rate of 15% p.a at the end of three years?

Answer 1

First of all we will calculate the simple interest with the formula - (principal × rate × time)/100.

Simple interest = ( 2600 × 15 × 3)/ 100 = Rs. 1,170.

Next we will calculate compound interest.

Amount for Compound interest = principal × (1 + rate /100) ^ 3.

Amount = 2600 × ( 1 + 15/100 ) ^ 3.

Amount = Rs. 3954.

Compound interest = Amount - principal = 3954 - 2600 = Rs. 1354.

Difference between compound interest and simple interest = Rs. 1354 - Rs. 1,170 = Rs. 184.