Multiple choice

A person earns Rs. 400 on a capital of Rs. 1000 as simple interest in 4 years. If the same rate of interest is compounded annually, what will be the compound interest for 2 years?

  1. Rs. 210

  2. Rs. 220

  3. Rs. 320

  4. Rs. 340
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A Correct answer
Explanation

Simple interest of 400 on 1000 in 4 years gives a rate of 10% per annum (400 = 1000 * r * 4 / 100). Compound interest on 1000 at 10% for 2 years is 1000 * (1.1^2 - 1) = 210.

AI explanation

Using the Simple Interest formula of (P x R x T)/100, the rate is calculated as (400 x 100)/(1000 x 4) = 10%. Using the Compound Interest formula A = P(1 + R/100)^T, the amount after 2 years is 1000 x (1.1)^2 = Rs. 1210. The compound interest is 1210 minus 1000, which equals Rs. 210.

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