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The difference between simple interest and compound interest on a sum of Rs 5000 for 2 years at 10% per annum is:
Rs 50
Rs 100
Rs 25
Rs 75
Rs 50
The difference between compound interest and simple interest for a period of 2 years is calculated using the formula 1002PR2. For a principal of Rs 5000 at 10% per annum, the difference amounts to Rs 50.
The difference between compound interest and simple interest for a period of 2 years is calculated using the formula 1002PR2. For a principal of Rs 5000 at 10% per annum, the difference amounts to Rs 50.
Think of simple interest as getting a fixed allowance every period, while compound interest is like a snowball rolling downhill, gathering more interest on previous interest as it grows.
SI for Straight, CI for Interest-on-Interest
SI=100P×R×T — Simple Interest formula
CI=P(1+100R)T−P — Compound Interest formula
D=1002PR2 — Difference for 2 years
Simple interest is calculated uniformly on the initial principal every year, whereas compound interest calculates interest on the accumulated amount. The difference arises from the extra interest earned on the first year's interest during the second year.
For 2 years, the difference between CI and SI is given by 1002PR2.
Simple interest remains constant each year, while compound interest grows progressively.
Allows quick calculation of 2-year difference without computing total SI and CI separately.
The direct difference formula 1002PR2 is specifically limited to 2 years.
Banking calculations
Financial investments
Option A is Rs 50, which is the correct calculated difference.
Other options represent calculation errors or incorrect application of formulas.
A is correct — The difference between compound and simple interest for 2 years at 10% on Rs 5000 is Rs 50.
For 3 years, use the extended formula Difference=1003PR2(300+R).
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