Question

The difference between simple interest and compound interest compounded annually on a certain sum of money for 2 years on at 8% per annum is Rs. 4. Find the sum.
1. 625
2. 650
3. 600
4. 500

Answer 1

Correct Answer - Option 1 : 625

Given:

Time = 2 years

Rate of interest (R) = 8% per annum

Difference between Simple interest and compound interest = Rs. 4

Formula used:

Net effect formula for CI = R + R + (R × R) / 100

Calculations:

We can solve it by the net % effect formula,

⇒ Rate% of SI for 2 yr at 8% pa = 8 × 2 = 16%

⇒ Rate% of CI for 2 yr at 8% pa = 8 + 8 + (8 × 8) / 100 = 16.64%

⇒ % rate difference of CI and SI = 16.64% - 16% = 0.64%

Let the sum be x, then

⇒ 0.64% of x = 4

⇒ X = (4 × 100) / 0.64 = 625

Hence the Sum is Rs. 625.