Rajiv invested a certain sum of money at 10% per annum. After 2 years, he received ₹199.5 as compound interest, compounded annually. Find the corresponding simple interest (in ₹) for 2 years at the same rate.
- AOption (a)
205
- BOption (b)
190
- COption (c)
200
- DOption (d)
185
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Correct answer
190
Why this answer is correct
Shortcut Trick
Effective rate of Compound Interest for 2 years at 10% = 10 + 10 + (10 × 10) ÷ 100 = 21%.
Effective rate of Simple Interest for 2 years at 10% = 10 × 2 = 20%.
Given that 21% equivalent = ₹199.5.
Then 20% equivalent = (199.5 ÷ 21) × 20 = 9.5 × 20 = 190.
∴ The correct answer is ₹190.
Alternate Method
Given: Compound Interest (CI) = ₹199.5, Rate (R) = 10%, Time (T) = 2 years.
Formula Used: CI = P[(1 + R ÷ 100)T − 1] and SI = (P × R × T) ÷ 100.
⇒ 199.5 = P[(1 + 10 ÷ 100)2 − 1]
⇒ 199.5 = P[(1.1)2 − 1]
⇒ 199.5 = P[1.21 − 1]
⇒ 199.5 = 0.21 × P
⇒ P = 199.5 ÷ 0.21 = 950
⇒ Simple Interest (SI) = (950 × 10 × 2) ÷ 100
⇒ SI = 19000 ÷ 100 = 190
∴ The correct answer is ₹190.
Additional Information
Effective Rate for 2 Years
For a rate R%, the effective Compound Interest rate for 2 years is given by R + R + (R × R) ÷ 100.
Difference between CI and SI
The difference between Compound Interest and Simple Interest for 2 years is CI − SI = P × (R ÷ 100)2.
Relationship for 2 Years
The ratio of CI to SI for 2 years is CI ÷ SI = (200 + R) ÷ 200.