The difference between the compound interest, compounded annually and simple interest on Rs. ‘P’ at the rate of 25% p.a. for 2 years, is Rs. 120. If Rs. (P + 1600) is invested at the same rate p.a., then find the compound interest, compounded annually earned after 3 years.
Using formula Difference = Sum(R/100)2 Or, 120 = P(25/100)2 Or, 120 = P(625/10000) Or, 0.0625P = 120 Or, P = 1920 Sum that is invested on compound interest = 1920 + 1600 = Rs. 3520 Compound interest = 3520(1 + 25/100)3 – 3520 = 3520 × (5/4) × (5/4) × (5/4) – 3520 = 6875 – 3520 = Rs. 3355
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