Time and Money

       A man invested Rs. 3300 in a bank on simple interest for 2 years at 5% p.a. Had the man invested the same principal at the same rate of interest for the same period compounded annually, what would be the percentage increase in the interest earned?

Answer:

Compound Interest = 3300 x 1.05² – 3300 = 3300 (1.1025 – 1) = 3300 x 0.1025

Simple interest = 3300 x 2 x .05 = 3300 x 0.1

Increase in interest earning = 3300 (0.1025 – 0.1) = 3300 x 0.0025

% increase in interest earning = 100 x (3300 x 0.0025)/(3300 x 0.1) = 2.5%