What is the difference between compound interests on ₹5,000 compounded yearly and half-yearly for 1 year at 4% per annum?
Show answer & explanation
Correct answer: B
Explanation
The correct answer is Option 2 i.e. ₹2.00.
C.I. when compounded yearly
C.I. = P(1 + R/100)T - P
⇒ C.I. = 5000(1 + 4/100)1
⇒ C.I. = 5000 × 1.04 = ₹ 5200
C.I. when compounded half-yearly
R = 4/2 = 2 % and, Time = 2 years
⇒ C.I. = 5000(1 + 2/100)2
⇒ C.I. = 5000 × (1.02)2
⇒ C.I. = 5000 × 1.0404 = ₹5202
Hence, the required difference = 5202 - 5200 = ₹2