Question : A deposited INR 1,56,250 at 8% simple interest for 2 years. How much more money will A have in his account at the end of two years, if at the same rate of interest, the sum is invested in compound interest, compounded annually?
Option 1: INR 1,740.90
Option 2: INR 1,000
Option 3: INR 2,000
Option 4: INR 1,540.40
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Correct Answer: INR 1,000
Solution :
Principal Amount, $P$ = INR 156250
Rate of interest, $R$% = 8%
Difference between Simple interest and Compound interest for 2 years = $P(\frac{R}{100})^2$ where $P$ is principal, $R$ is the rate of interest.
Extra interest = Difference between Simple interest and Compound interest for 2 years
= $156250\times (\frac{8}{100})^2$
= INR 1000
Hence, the correct answer is INR 1,000.
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