Discussion

What is the difference between the C.I. on Rs. 5000 for 1 1/2 years at 4% per annum compounded yearly and half-yearly?

Answer: A

C.I. when interest is compounded yearly

= [5000 * (1 + 4/100) * (1 + (1/2 * 4)/100]

= 5000 * 26/25 * 51/50 = Rs. 5304

C.I. when interest is compounded half-yearly

= [5000 * (1 + 2/100)²]

= (5000 * 51/50 * 51/50 * 51/50) = Rs. 5306.04 Difference = (5306.04 - 5304) = Rs. 2.04

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