Question : The difference between Simple and Compound Interest (compounded annually) on Rs. 40,000 for 3 years at 8% per annum is:
Option 1: Rs. 684.32
Option 2: Rs. 788.48
Option 3: Rs. 784.58
Option 4: Rs. 4,000
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Correct Answer: Rs. 788.48
Solution :
The formula for the difference between Compound Interest(CI) and Simple Interest(SI) for 3 years is given by:
$CI-SI=\frac{PR^{2}(300+R)}{100^{3}}$, where $P$ is principal and $R$ is rate of interest per annum compounded annually.
⇒ $CI-SI=\frac{40000\times8^{2}\times(300+8)}{100^{3}}$
⇒ $CI-SI=\frac{788480000}{1000000}$
$\therefore CI-SI=788.48$
Hence, the correct answer is Rs. 788.48.
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