Given:
The simple interest at 10% p.a. on a deposit for 2 years is Rs. 4,000.
Formula used: simple interest = (principal × rate × time)/100
compound interest (CI) = A – P = P[(1 + R/100)n – 1]; where A = amount, P = principal, R = rate p.a., n = time period
Concept Used: compound interest is also successive percentage increase.
rate = 10 + 10 + (10 × 10)/100 = 21%
Solution:
Let the principal is Rs. P
.∴ 4000 = (P × 10 × 2)/100
⇒ principal = Rs. 20,000
⇒ compound interest = 20,000 × 21/100
⇒ compound interest = Rs. 4200
⇒ increased interest = Rs. (4200 - 4000) = Rs. 200
So, compound interest rupees is 200 more than simple interest. Smart Method Difference in rate of CI and SI for 2 years = R2/100 = 102/100 = 1%
Rate of SI for 2 years = 10 × 2 = 20%
According to question,
20%=4000 ⇒
1%==200