Compound interest on a sum at 10% per annum for 2 years is Rs. 420. What will be the simple interest for the same sum, rate, and period_______?
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Answer: D. Rs. 400
Explanation
Compound interest for two years at ten percent creates a total growth multiplier of twenty one percent. Dividing the compound interest amount by twenty one percent reveals a principal sum of two thousand rupees. Calculating simple interest at ten percent annually for two years yields twenty percent of the principal. Compound interest generates earnings on both the initial principal and accumulated interest from prior periods. Simple interest calculates earnings exclusively on the original principal amount across all time periods. Comparing compound and simple interest highlights the accelerated growth effect of compounding over multiple years.
Banking institutions use compound interest formulas for long-term savings accounts and mortgage amortization schedules. Financial planners help clients choose between simple and compound return investment vehicles. Understanding interest mechanics is essential for personal debt management and wealth accumulation. Option A suggests three hundred fifty rupees which assumes linear growth without compounding effects. Option B suggests three hundred seventy five rupees which does not match standard percentage formulas. Option C suggests three hundred eighty rupees which represents an incorrect principal calculation.
- Subject
- Mathematics
- Category
- Mathematics
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- —
- Difficulty
- medium
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