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Simple and Compound Interest
If the simple interest on a sum of money for 2 years at 5% per annum is Rs. 50, what is the compound interest on the same sum at the same rate and for the same time?
Correct answer: A
Explanation and memory cue
The principal can be found using the simple interest formula: SI = P × R × T / 100, so P = (SI × 100) / (R × T) = (50 × 100) / (5 × 2) = Rs. 500. Compound interest for 2 years at 5% is CI = P[(1 + R/100)^T - 1] = 500[(1 + 0.05)^2 - 1] = 500(1.1025 - 1) = Rs. 51.25, which matches option A.