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Question
Calculate the difference between the simple interest and the compound interest on Rs. 4,000 in 2 years at 8% per annum compounded yearly.
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Solution
For 1st year
P = Rs. 4000
R = 8
T = 1 year
I = `[4000 xx 8 xx 1 ]/100` = 320
A = 4000 + 320 = Rs. 4320
For 2nd year
P = Rs. 4320
R = 8%
T = 1 year
I = `[ 4320 xx 8 xx 1]/100` = Rs. 345.60
A = 4320 + 345.60 = 4665.60
Compound interest = Rs. 4665.60 - Rs. 4000 = Rs. 665.60
Simple interest for 2 years = `[ 4000 xx 8 xx 2 ]/100` = Rs. 640
Difference of CI and SI = 665.60 - 640 = Rs 25.60.
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