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Zaved borrowed Rs. 10,000 for 2 years on compound interest, compounded annually and paid Rs. 12,544 at the end of 2 years. If he had borrowed the amount on simple interest, then how much money he would have saved?
1. Rs. 12,400
2. Rs. 2,400
3. Rs. 144
4. Rs. 4,944

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Correct Answer - Option 3 : Rs. 144

Given:

Sum borrowed by Zaved for 2 years = Rs.10000

Amount paid by Zaved at the end of 2 years = Rs.12544

Formulas used:

When interest compounded annually;

Amount = Principal × (1 + r/100)n

Amount at simple interest; 

Amount = Principal + Principal × Rate/100 × Time 

Calculation:

12544 = 10000 × (1 + r/100)2

⇒ 12544/10000 = (1 + r/100)2

⇒ √(784/625) = 1 + r/100 

⇒ 28/25 - 1 = r/100 

⇒ 3/25 = r/100 

⇒ 25r = 300 

⇒ r = 300/25 = 12%

Amount at the end of 2 years at 12% per annum simple interest;

Amount = 10000 + 10000 × 12/100 × 2 

⇒ 10000 + 2400 

⇒ 12400 

∴ The Amount saved by Zaved = Rs.12544 - Rs.12400 = Rs.144

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