CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
The difference between compound interest and simple interest on a sum for 2 years at 10% per annum is Rs 150. What is the sum?
The sum is Rs 15,000. For two years, the difference between compound and simple interest equals P times the rate squared, so P x 0.01 = 150 gives P = 15,000. Check: CI is 3,150 and SI is 3,000, a difference of 150.
- ARs 1,500
- BRs 15,000Correct
- CRs 7,500
- DRs 30,000
Explanation
For 2 years, CI - SI = P x (r)^2 = P x 0.01. So P = 150 / 0.01 = 15,000. Check: SI = 3,000, CI = 15,000 x 0.21 = 3,150, difference 150. Rs 1,500 comes from using 10% as the factor instead of its square.
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