CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
Mr. Sharma lends Rs 25,000 to a friend at 8% per annum simple interest. How much interest will he earn in 3 years?
The interest is Rs 6,000. Simple interest is calculated on the original principal only, so it equals 25,000 multiplied by 8 percent and by 3 years, which gives Rs 6,000 over the three years.
- ARs 5,000
- BRs 6,000Correct
- CRs 6,500
- DRs 7,000
Explanation
Simple interest = P × r × t = 25,000 × 0.08 × 3 = Rs 6,000. Rs 5,000 is the interest for only 2.5 years, and Rs 6,500 comes from wrongly adding a half year.
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