- The difference between the compound interest and the simple interest on
a certain sum at 12% p.a. for two years is Rs.90. What will be the value of
the amount at the end of 3 years?
(1) 9000 (2) 6250 (3) 8530.80 (4) 8780.80
Solution:
The difference in the simple interest and compound interest for two years is on
account of the interest paid on the first year's interest, when interest is
reckoned using compound interest, interest being compounded annually.
Hence 12% of simple interest = 90 => simple interest = 90/0.12 =750.
As the simple interest for a year = 750 @ 12% p.a., the principal = 750 / 0.12=
Rs.6250.
If the principal is 6250, then the amount outstanding at the end of 3 years =
6250 + 3(simple interest on 6250) + 3 (interest on simple interest) + 1
(interest on interest on interest) = 6250 + 3(750) + 3(90) + 1(10.80) = 8780.80.
