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Simple & Compound Interest
The difference between simple interest and compound interest at the same rate for Rs. 5000 for 2 years is Rs. 72. What is the rate of interest?
Explanation and memory cue
The difference between compound interest (CI) and simple interest (SI) for 2 years at the same rate R% on principal P is given by the formula: CI - SI = P * (R/100)^2. Given the difference is Rs. 72 and P = 5000, we have 72 = 5000 * (R/100)^2. Simplifying, (R/100)^2 = 72/5000 = 0.0144, so R/100 = 0.12, which means R = 12%. Therefore, the rate of interest is 12%. The original answer given as option D (8%) is incorrect; the correct answer is option B (12%).