Question : On a certain sum of money, the simple interest for 2 years is INR 150 at the rate of 10% per annum. What is the difference between compound interest and simple interest for 2 years if, in the case of compound interest, interest is compounded annually at the rate of 10% per annum?
Option 1: INR 5
Option 2: INR 10
Option 3: INR 7.5
Option 4: INR 12.5
Correct Answer: INR 7.5
Solution :
Let the principal amount be P.
Given, Simple interest for 2 years = INR 150
Simple interest for 1 year = INR 75
Rate of interest = 10% per annum.
The difference between compound interest and simple interest for two years at the same rate of interest is the interest on the first year's interest.
Required difference = 10% of 75
= INR 7.5
Hence, the correct answer is INR 7.5.
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