Find the difference between the compound and simple interest on a sum of Rs. 25000 over a 2 year period if the compound interest is calculated at 20% and simple interest is calculated at 23%.

Find the difference between the compound and simple interest on a sum of Rs. 25000 over a 2 year period if the compound interest is calculated at 20% and simple interest is calculated at 23%.
1). Rs. 500
2). Rs. 1000
3). Rs. 2000
4). Rs. 250

Since compound interest is calculated at 20%

⇒ Cumulative compound interest for 2 years = 20 + 20 + [20 × 20] /100 = 44%

Since simple interest is calculated at 23%

⇒ Cumulative simple interest for 2 years = 23 + 23 = 46%

⇒ Difference in the interest rate = 46 - 44 = 2%

∴ Difference between the compound and simple interest = [25000 × 2] /100 = Rs. 500

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