Multiple choice

The approximate difference between compound and simple interest at 5% per annum for four years on Rs. 20,000 is

  1. Rs. 250

  2. Rs. 277

  3. Rs. 300

  4. Rs. 310
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The compound interest for 4 years at 5% is 20000 * ((1.05)^4 - 1) = 20000 * (1.21550625 - 1) = 4310.125. The simple interest is 20000 * 0.05 * 4 = 4000. The difference is 310.125, which rounds to 310.

AI explanation

Using the simple interest formula, the SI for 4 years is (20000 x 5 x 4) / 100 = Rs. 4000. Using the compound interest formula, the CI is 20000 x (1 + 0.05)^4 minus 20000, which equals 20000 x 1.21550625 minus 20000 = Rs. 4310.125. The difference between the compound interest and simple interest is 4310.125 minus 4000, resulting in Rs. 310.125. The correct answer is Rs. 310.

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