Skip to content

CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities

Anita invests Rs 1,00,000 in a fixed deposit at 10% per annum compounded annually for 2 years. How much more does she earn than she would under simple interest at the same rate and period?

She earns Rs 1,000 more. Compounding gives Rs 1,21,000, an interest of Rs 21,000, while simple interest gives Rs 20,000. The difference equals interest earned in year two on the first year's interest of Rs 10,000 at 10%.

  1. ARs 1,000Correct
  2. BRs 10,000
  3. CRs 21,000
  4. DRs 2,000

Explanation

Compound amount = 1,00,000 x 1.1 x 1.1 = Rs 1,21,000, so interest is Rs 21,000. Simple interest = 1,00,000 x 10% x 2 = Rs 20,000. Difference = Rs 1,000, which is interest on the first year's interest (10% of 10,000). Rs 21,000 is the total compound interest, not the difference.

Did you get it right without looking?

One question tells you little. A timed set on Calculation of Interest and Annuities shows your real accuracy, how long you take and where you lose marks.

Practise Calculation of Interest and AnnuitiesFree diagnostic mock

More Calculation of Interest and Annuities questions