Multiple choice

A financier took Rs. 80,000 on loan from a bank at 20% simple interest and gave it to another person at the same rate, but compounded the interest twice a year. What would be his profit at the end of the year?

  1. Rs. 600

  2. Rs. 800

  3. Rs. 1600

  4. Rs. 1800

  5. Rs. 400
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Interest paid = 80,000 * 0.20 = 16,000. Interest received (compounded semi-annually) = 80,000 * (1 + 0.10)^2 - 80,000 = 80,000 * 1.21 - 80,000 = 96,800 - 80,000 = 16,800. Profit = 16,800 - 16,000 = 800.

AI explanation

The simple interest on the bank loan for one year is (80000 * 20 * 1) / 100 = Rs. 16000. For the loan given at semi-annual compound interest, the new half-yearly rate is 10%, so the amount after one year becomes 80000 * (110 / 100) * (110 / 100) = Rs. 96800, yielding a compound interest of Rs. 16800. The financier's profit is 16800 - 16000 = Rs. 800.

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