Multiple choice

The difference between simple interest and compound interest on a certain sum of money for four years at 10% per annum is $320.50. Find the sum.

  1. $5000
  2. $5500
  3. $6000
  4. $6500
  5. $7000
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A Correct answer
Explanation

For 4 years at 10% interest, the difference between compound interest (CI) and simple interest (SI) is given by P * ((1+r/100)^n - 1 - (n*r/100)). For n=4 and r=10%, the CI factor is 1.1^4 = 1.4641 and the SI factor is 1 + 0.4 = 1.4. The difference is 0.0641. Setting P * 0.0641 = 320.50 gives P = 320.50 / 0.0641 = 5000.

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