Discussion of Question with ID = 057 under Compound-Interest

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Question

The difference between compound interest(annual compounding) and simple interest for a period of 2 years is Rs. 8. What is the rate p.a. if principal is Rs. 20000?

A

2%.

B

4%.

C

3%.

D

5%.

Soln.
Ans: a

If d is the difference, r is the rate and P is the principal, then the shortcut formula for the difference between compound and simple interest over a period of 2 years is d = P × $(r/100)^2$. So rate = 100 × $√{d/P}$ = 100 × $√{8/20000}$ = 2%.


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