Question : On a certain sum of money, the simple interest for 2 years is Rs. 350 at the rate of 4% per annum. It was invested at compound interest at the same rate for the same duration as before, how much more interest would be earned?
Option 1: Rs. 3.50
Option 2: Rs. 7
Option 3: Rs. 14
Option 4: Rs. 35
Correct Answer: Rs. 7
Solution :
The difference between simple and compound interest for 2 years equals interest on the first year's interest.
Given: Simple Interest for 2 years = Rs. 350
So, interest for the first year = Rs. 175
$\therefore$ The difference between simple and compound interest for 2 years = 4% of 175 = Rs. 7
Hence, the correct answer is Rs. 7
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