Multiple choice

The difference between the compound interest and simple interest at the rate of 10% per annum at the end of two years is Rs. 496.20. If the compound interest is compounded every six months, what is the sum?

  1. Rs. 30000

  2. Rs. 32000

  3. Rs. 34800

  4. Rs. 36700

  5. Cannot be determined
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

For compound interest compounded half-yearly at 10% annual rate, the half-yearly rate is 5% per period. In 2 years, there are 4 periods. Let P be the principal. CI = P(1 + 5/100)^4 - P = P(1.05)^4 - P = P(1.2155) - P = 0.2155P. SI = P × 10 × 2/100 = 0.2P. Difference CI - SI = 0.2155P - 0.2P = 0.0155P = 496.20. Therefore P = 496.20/0.0155 ≈ Rs. 32000.

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