If in 2 years at simple interest the principal increases by 16%, what will be the compound interest earned (in Rs) on Rs 25,000 in 2 years at the same rate?Options4000200041602160
Question
If in 2 years at simple interest the principal increases by 16%, what will be the compound interest earned (in Rs) on Rs 25,000 in 2 years at the same rate?Options4000200041602160
Solution
The problem states that the principal increases by 16% in 2 years at simple interest. This means the annual interest rate is 8% (16% divided by 2 years).
To calculate the compound interest, we use the formula:
A = P (1 + r/n)^(nt)
where: A = the amount of money accumulated after n years, including interest. P = the principal amount (the initial amount of money) r = annual interest rate (in decimal) n = number of times that interest is compounded per year t = the time the money is invested for in years
In this case, P = Rs 25,000, r = 8% or 0.08 (in decimal), n = 1 (interest is compounded annually), and t = 2 years.
So,
A = 25000 * (1 + 0.08/1)^(1*2) A = 25000 * (1.08)^2 A = 25000 * 1.1664 A = Rs 29160
The compound interest earned is A - P = Rs 29160 - Rs 25000 = Rs 4160.
So, the compound interest earned on Rs 25,000 in 2 years at the same rate is Rs 4160.
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