Question 31 of 45intermediate🔧 ApplyNumerical4 marks

Giridhar borrows a loan of ₹12,500 at 12% per annum for 3 years without compounding and Raghava borrows the same amount for the same time period at 10% per annum, compounded annually. Who pays more interest and by how much?

Correct Answer

Giridhar (Simple Interest at 12%): Interest = ₹12,500×0.12500 \times 0.12 × 3 Interest = ₹4,500

Raghava (Compound Interest at 10%): Amount = ₹12,500 × (1.10)³ Amount = ₹12,500×1.331500 \times 1.331 = ₹16,637.50 Interest = ₹16,637.50 - ₹12,500 Interest = ₹4,137.50

Comparison: Difference = ₹4,500 - ₹4,137.50 Difference = ₹362.50 ∴ Giridhar pays more interest by ₹362.50.

Exercise: Figure it Out (Section 4) | Q: 6 | (Page Page 24)
For More Understanding

Explanation

The chapter compares different interest calculations. Even though Giridhar has a higher rate (12% vs 10%), his simple interest calculation results in more interest than Raghava's compound interest at a lower rate.

Solution Steps

  1. Giridhar (Simple Interest at 12%):

  2. Interest = 12,500×0.12500 \times 0.12 × 3 = ₹4,500

  3. Raghava (Compound Interest at 10%):

  4. Amount = 12,500 × (1.10)³ = 12,500×1.331500 \times 1.331 = ₹16,637.50

  5. Interest = 16,637.50 - 12,500 = ₹4,137.50

  6. Giridhar pays more by ₹4,500 - ₹4,137.50 = ₹362.50

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