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Question
Rohit borrows Rs. 86,000 from Arun for two years at 5% per annum simple interest. He immediately lends out this money to Akshay at 5% compound interest compounded annually for the same period. Calculate Rohit's profit in the transaction at the end of two years.
Solution
P = Rs. 86,000; time = 2 years and rate = 5% p.a.
To calculate S.I.
∴ S.I. = `[ "P" xx "R" xx "T" ]/100 = [ 86,000 xx 5 xx 2 ]/100 = "Rs." 8,600`
To calculate C.I.
∴ C.I. = P`[( 1 + r/100)^n - 1]`
= `86,000[( 1 + 5/100)^2 - 1]`
= `86,000(41/400)` = Rs. 8,815
Profit = C.I. - S.I. = Rs.8,815 - Rs.8,600 = Rs.215
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