Multiple choice

In 2 years, at simple interest, the principal increases by 8%. What will be the compound interest earned (in Rs.) on Rs. 10 lakh in 2 years at the same rate?

  1. 86,000

  2. 81,600

  3. 90,000

  4. 94,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Since the principal increases by 8% in 2 years under simple interest, the annual interest rate is 4%. Applying this 4% annual rate to a principal of Rs. 10 lakh compounded annually for 2 years results in an effective interest of 8.16%. Calculating 8.16% of Rs. 10 lakh gives Rs. 81,600.

AI explanation

If the principal increases by 8% in 2 years at simple interest, the annual rate of interest is 8 divided by 2, which is 4% per annum. Using the compound interest formula for 2 years, Interest equals Principal times (1 plus R divided by 100) squared minus Principal, so the interest is 1000000 times 1.04 squared minus 1000000. This calculates to 1081600 minus 1000000, giving an interest of Rs. 81,600.

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