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Question
Find the difference between simple interest and compound interest on ₹ 20000 at 8 p.c.p.a.
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Solution
Here, P = Principal = ₹ 20000
R = 8 %
N = 2 years
Simple interest (I):
Simple interest = `("P" xx "R" xx "N")/100`
= `(20000 xx 8 xx 2)/100`
= 3200
Compound Interest (I):
A = `"P" (1 + "R"/100)^"N"`
= `20000(1 + 8/100)^2`
= `20000((100 + 8)/100)^2`
= `20000(108/100)^2`
= `20000 ((27 xx 4)/(25 xx 4))^2`
= `20000(27/25)^2`
= `20000 xx 27/25 xx 27/25`
= 32 × 27 × 27
= 23328
Compound interest
= Amount (A) – Principal (P)
= 23328 – 20000
= 3328
Difference:
= Compound interest – Simple interest
= 3328 – 3200
= 128
Hence, the difference between simple interest and compound interest is ₹ 128.
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