What will be the difference in compound interest on a sum of ₹ 7,800 at 8% for 1 year, when the interest is paid yearly and half yearly?
Answer & explanation
Correct answer: option 2
When interest is paid yearly ,
Compound interest = Principal × ( 1 + \(\frac{rate }{100}\) )t - Principal
= 7800 × ( 1 + \(\frac{8 }{100}\) )1 - 7800
= 8424 - 7800
= 624
Now ,
When interest is compounded half yearly ,
Compound interest = Principal × ( 1 + \(\frac{rate }{100}\) )t - Principal
= 7800 × ( 1 + \(\frac{4 }{100}\) )2 - 7800
= 7800 × \(\frac{26 }{25}\) × \(\frac{26 }{25}\) - 7800
= 8436.48 - 7800
= 636.48
Required difference = 636.48 - 624
= Rs. 12.48