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Question
Fabina borrows Rs 12,500 at 12% per annum for 3 years at simple interest and Radha borrows the same amount for the same time period at 10% per annum, compounded annually. Who pays more interest and by how much?
Solution
Interest paid by Fabina = `"P x R x T"/100`
= Rs `((12500xx12xx3)/100)` = Rs4500
Amount paid by Radha at the end of 3 years = A = `P(1 + R/100)^n`
A = Rs `[12500(1 + 10/100)^3]`
= Rs `(12500xx 110/100xx110/100xx110/100) = Rs 16637.50`
C.I. = A − P = Rs 16637.50 − Rs 12500 = Rs 4,137.50
The interest paid by Fabina is Rs 4,500 and by Radha is Rs 4,137.50.
Thus, Fabina pays more interest.
Rs 4500 − Rs 4137.50 = Rs 362.50
Hence, Fabina will have to pay Rs 362.50 more.
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