Multiple choice

The difference between compound interest and simple interest on Rs. 20000 for 3 years at 10% p.a. is-

  1. Rs. 880

  2. Rs. 420

  3. Rs. 620

  4. Rs. 660
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Simple Interest = P×R×T/100 = 20000×10×3/100 = Rs. 6000. Compound Interest = P[(1+R/100)^T - 1] = 20000[(1.1)^3 - 1] = 20000[1.331 - 1] = Rs. 6620. Difference = 6620 - 6000 = Rs. 620. The key is that compound interest earns interest on interest, creating a larger amount over time.

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