The simple interest on a certain sum for two years at the rate of 20% per annum is ₹250. What is the compound interest (compounded annually) on the same sum for the same period at the same rate of interest?
Answer & explanation
Correct answer: option 1
We know ,
Simple Interest = \(\frac{Principal ×Rate × Time }{100}\)
250 = \(\frac{Principal × 20 × 2 }{100}\)
Principal = 625
With Compound interest , Amount = Principal × ( 1 + \(\frac{r }{100}\))²
= 625 × ( 1 + \(\frac{20 }{100}\))²
= 625 × ( 1 + \(\frac{1 }{5}\))²
= 625 × \(\frac{6 }{5}\) × \(\frac{6 }{5}\)
= 900
Amount = Principal + Compound Interest
Compound Interest = 900 - 625 = 275