The simple interest on a certain sum of money at the rate of 6 % per annum for 2 years is Rs. 960. What is the compound interest (compounding annually) on the same sum period and at the same rate of interest?
Show answer & explanation
Correct answer: B
Explanation
The correct answer is Option 2 i.e. Rs. 988.8.
We know that,
S.I. = (P × R × T)/100
here, S.I. = Simple Interest, P = principal, R = Rate, and T = Time
Now,
⇒ 960 = (P × 6 × 2)/100
⇒ P = (960 × 100)/12
⇒ P = 8000
Now, when the sum is compounded annually
Amount(A) = P(1 + R/100)T
⇒ A = 8000(1 + 6/100)2
⇒ A = 8000(1 + 0.06)2
⇒ A = 8000 × 1.062
⇒ A = 8000 × 1.1236
⇒ A = 8988.8
So, the amount after 2 years is Rs. 8988.8
Thus,
Compound Interest(CI) = A - P
⇒ CI = 8988.8 - 8000
⇒ CI = 988.8
Therefore, the compound interest on the sum for 2 years at 6% interest, compounded annually, is Rs. 988.8.