Sehar gave Shazia Rs.1250 on compound interest for 2 years at 4% per annum. How much loss would Sehar has suffered had she given it to Shazia for 2 years at 4% per annum simple interest?
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Answer: B. Rs.2
Explanation
The difference between compound interest and simple interest over two years depends on the squared interest rate. Multiplying the principal amount by the square of the percentage rate yields the exact interest difference. Evaluating twelve hundred fifty multiplied by zero point zero four squared results in a difference of two rupees. The formula for the two-year difference between compound and simple interest is principal times rate squared. Simple interest charges a fixed percentage of the original principal for every active year. Compound interest generates additional earnings by charging interest on previously accumulated interest balances.
Financial planners use interest difference formulas to demonstrate the long-term cost of compounding debt. Lending institutions highlight interest calculation methods to ensure transparency in consumer loan disclosures. Quick shortcut formulas save valuable time during competitive quantitative aptitude examinations. Option A overestimates the interest difference by miscalculating the decimal placement in the formula. Option C represents an incorrect arithmetic output from a flawed application of the rate squaring step. Option D suggests a higher financial loss that contradicts the precise algebraic formula outcome.
- Subject
- Mathematics
- Category
- Mathematics
- Topic
- —
- Difficulty
- medium
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