Multiple choice

John borrowed Rs.1,00,000 at 10 percent per annum simple interest. He immediately lent the whole sum at 10 percent per annum compound interest. At the end of 2 years, he would gain -

  1. Rs.1,000

  2. Rs.1,800

  3. Rs.2,000

  4. Rs.100.
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A Correct answer
Explanation

Simple interest = 100000 * 0.1 * 2 = 20000. Compound interest = 100000 * (1.1^2 - 1) = 100000 * 0.21 = 21000. Gain = 21000 - 20000 = 1000.

AI explanation

Using the simple interest formula, the interest to be paid is 100000 times 10 times 2 divided by 100, resulting in Rs. 20000. Using the compound interest formula, the amount to be received is 100000 times 1.10 squared, which equals Rs. 121000, making the interest earned Rs. 21000. The gain is the difference between the interest earned and the interest paid, which is 21000 minus 20000, resulting in Rs. 1000.

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