The difference between simple interest and compound interest on a sum of money for 1 year at 4% per 6 months is Rs.4. Find the sum?
Answer & explanation
Correct answer: option 4
Rate = 4% per 6 months, so in 1 year there are 2 compounding periods.
For 1 year:
- Simple Interest (SI) $= P \times 8\%$
- Compound Interest (CI) $= P \left[(1.04)^2 - 1\right]$
Difference between CI and SI:
$P \left[(1.04)^2 - 1 - 0.08\right]$
$= P(1.0816 - 1 - 0.08)$
$= P(0.0016)$
Given the difference is ₹4:
$0.0016P = 4$
$P = \frac{4}{0.0016} = 2500$