A sum of ₹5,000 was deposited for 3 years at 10% per annum, compounded annually. The difference between the interest for 2 years and that for 3 years is:
Answer & explanation
Correct answer: option 4
From the formula for compound interest, we know,
C.I = P(1+$\frac{R}{100})^t$– P
CI for 2 years,
= 5000 [ 1 + \(\frac{10}{100}\) ]² - 5000
= 5000 [ \(\frac{11}{10}\) × \(\frac{11}{10}\) - 1 ]
= 5000 [ \(\frac{21}{100}\) ]
= 1050
CI for 3 years,
= 5000 [ 1 + \(\frac{10}{100}\) ]³ - 5000
= 5000 [ \(\frac{11}{10}\) × \(\frac{11}{10}\) × \(\frac{11}{10}\) - 1 ]
= 5000 [ \(\frac{331}{1000}\) ]
= 1655
Required difference = 1655 - 1050
= Rs. 605