What is the difference between the compound interest on ₹6,400 for 1 year ar 5% per annuam compounded yearly and half-yearly?
Show answer & explanation
Correct answer: C
Explanation
The correct answer is option 3 i.e. ₹4.
Compound interest is compounded yearly = P(1 + R/100)n - P
= 6400(1 + 5/100)1 - 6400
= 6400(1.05) - 6400
= 6720 - 6400
= ₹320
Rate (R) = 5% per annum, so 5/2 = 2.5% per half-year
Time (n) = 1 year, which is 2 half-years
Compound interest compounded half-yearly = 6400(1 + 2.5/100)2 - 6400
= 6400(1025/1000)2 - 6400
= 6724 - 6400
= 324
Difference = 324 - 320 = 4
Therefore, the difference between the compound interest compounded half-yearly and yearly is ₹4.