If the simple interest on a sum of money for two years at 5% per annum is Rs.50, then what is the compound interest when compounding annually at the same rate and for the same time?
Show answer & explanation
Correct answer: D
Explanation
The correct answer is Option 4 i.e. Rs.51.25.
We know that,
Simple interest = (Principle × Rate × Time)/100
⇒ 50 = (Principle × 5 × 2)/100
⇒ 5000/10 = Principle
Principle = Rs.500
⇒ Compound interest = P(1 + R/100)T - P
⇒ Compound interest = 500(1 + 5/100)2 - 500
⇒ Compound interest = 500(1 + 0.05)2 - 500
⇒ Compound interest = 500(1.05)2 - 500
⇒ Compound interest = 551.25 - 500
⇒ Compound interest = Rs.51.25