If the simple interest on a sum of money at 8% per annum in 2 years is ₹2,000, find the compound interest on the same sum for the same period at the same rate in case of annual compounding.
- AOption (a)
₹2080
- BOption (b)
₹1660
- COption (c)
₹2040
- DOption (d)
₹1960
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Correct answer
₹2080
Why this answer is correct
Shortcut Trick
The effective Simple Interest rate for 2 years at 8% = 8 + 8 = 16%.
The effective Compound Interest rate for 2 years = 8 + 8 + (8 × 8) ÷ 100 = 16.64%.
Given that 16% corresponds to ₹2,000.
Required Compound Interest (16.64%) = (2000 ÷ 16) × 16.64
⇒ 125 × 16.64 = ₹2080.
∴ The correct answer is ₹2080.
Alternate Method
Given:
Simple Interest (SI) = ₹2,000 | Rate (R) = 8% p.a. | Time (T) = 2 years
Formula Used:
SI = (P × R × T) ÷ 100
CI for 2 years = SI + (Interest on 1st year SI)
Calculations:
⇒ 2000 = (P × 8 × 2) ÷ 100
⇒ 2000 = 16P ÷ 100
⇒ P = (2000 × 100) ÷ 16
⇒ P = ₹12,500
⇒ SI for 1st year = 2000 ÷ 2 = ₹1000
⇒ Compound Interest (CI) = SI for 2 years + (8% of 1st year SI)
⇒ CI = 2000 + (1000 × 8 ÷ 100)
⇒ CI = 2000 + 80 = ₹2080
∴ The correct answer is ₹2080.
Additional Information
Effective Rate of CI
For 2 years, the effective interest rate can be calculated using the successive percentage formula: R + R + (R × R) ÷ 100.
Difference between CI and SI
The difference (D) between CI and SI for 2 years is given by the formula: D = P × (R ÷ 100)2.
General CI Formula
Amount (A) = P(1 + R ÷ 100)n, where n is the number of years. CI = A − P.