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Sehar gave Shazia Rs.1250 on compound interest for 2 years at 4% per annum. How much loss would Sehar has suffered had she given it to Shazia for 2 years at 4% per annum simple interest?

Correct answer: B. Rs.2

  • A. Rs.10
  • B. Rs.2
  • C. Rs.5
  • D. Rs.3

Explanation

For 2 years, the compound-interest excess over simple interest is P x r² = Rs.1250 x (0.04)² = Rs.1250 x 0.0016 = Rs.2. Thus simple interest would cause a loss of Rs.2 compared with compound interest. Students may choose Rs.10 by calculating only one year's interest on the interest amount.

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