The difference between simple and half-yearly compounded interest on Rs. 1200 for one year at 10% per annum is________?
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Answer: B. Rs. 3
Explanation
Simple interest at 10 percent for one year on 1200 rupees equals 120 rupees. Half-yearly compounding applies a 5 percent rate over two compounding periods in one year. Calculating half-yearly compound interest gives 123 rupees, creating a 3 rupee difference. Simple interest equals principal multiplied by rate multiplied by time divided by 100. Half-yearly compounding divides the annual rate by two and doubles the period count. Compound interest amount equals 1200 times one point zero five squared minus 1200.
Compounding frequency directly impacts the total interest accrued on loans and deposits. Regulatory bodies require financial institutions to disclose effective annual rates. Comparing annual and semi-annual compounding helps borrowers understand payment structures. Choosing 2.50 rupees underestimates the interest variance caused by semi-annual compounding. Choosing 3.75 rupees overestimates the difference between simple and compound interest. Choosing 4 rupees represents an incorrect calculation of the compounding period return.
- Subject
- Mathematics
- Category
- Mathematics
- Topic
- —
- Difficulty
- medium
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