The simple interest on a sum of ₹50,000 at the end of two years is ₹4,000. What would be the compound interest on the same sum at the same rate for the same period ?
Answer & explanation
Correct answer: option 2
By using formulas,
Simple Interest = \(\frac{Principal ×Rate × Time }{100}\)
4000 = \(\frac{50000 ×Rate × 2 }{100}\)
4 = \(\frac{50× Rate}{50}\)
Rate = 4%
In case of compound interest ,
Amount = Principal× ( 1 + \(\frac{r }{100 }\) )t
Amount = 5000× ( 1 + \(\frac{4 }{100 }\) )2
= 500-0× ( 1 + \(\frac{1 }{25 }\) )2
= 50000 × \(\frac{26 }{25 }\) × \(\frac{26 }{25 }\)
= 54080
Now , Amount = Principal + Compound Interest
54080 = 50000 + Compound Interest
Compound Interest = 54080 - 50000
= 4080