What is the difference between compound interest and simple interest on Rs. 5,000 for 2 years at 4 per cent per annum according as the interest is compounded yearly?
Question
What is the difference between compound interest and simple interest on Rs. 5,000 for 2 years at 4 per cent per annum according as the interest is compounded yearly?
Solution
Sure, let's calculate the difference between compound interest and simple interest for the given conditions.
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Simple Interest: The formula for simple interest is PRT/100, where P is the principal amount, R is the rate of interest, and T is the time in years. So, Simple Interest = (5000 * 4 * 2)/100 = Rs. 400
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Compound Interest: The formula for compound interest is P(1 + R/100)^T - P, where P is the principal amount, R is the rate of interest, and T is the time in years. So, Compound Interest = 5000(1 + 4/100)^2 - 5000 = Rs. 408
The difference between the compound interest and simple interest is Rs. 408 - Rs. 400 = Rs. 8.
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