The difference between simple and compound interest compounded annually on a certain sum for 2 years at 4% p.a. is Re. 1. Find the sum.
Aptitude
Compound Interest
Difficulty: Easy
Choose an option
Answer
Correct Answer: Rs. 625
Explanation
Problem restatementFor two years at rate r, the excess of CI over SI equals P r2. Use this to get P.
Given data
- r = 4% = 0.04; CI − SI = Re. 1
Step-by-step calculationP r2 = 1 ⇒ P × (0.04)2 = 1P × 0.0016 = 1 ⇒ P = 625
Verification/AlternativeWith P = 625: SI (2 yrs) = 625 × 0.08 = 50; CI = 625[(1.04)2 − 1] = 625(0.0816) = 51; difference = 1.
Common pitfallsApplying the identity for periods other than exactly 2 years.
Final AnswerRs. 625