If in 2 years at simple interest the principal increases by 16%, what will be the compound interest earned (in Rs) on Rs 25,000 in 2 years at the same rate?Options4000216020004160

The problem states that the principal increases by 16% in 2 years at simple interest. This means the annual interest rate is 8% (16% divided by 2 years).

To find the compound interest, we use the formula for compound interest which is A = P(1 + r/n)^(nt), where:

• A is the amount of money accumulated after n years, including interest.
• P is the principal amount (the initial amount of money).
• r is the annual interest rate (in decimal).
• n is the number of times that interest is compounded per year.
• t is the time the money is invested for in years.

In this case, we are looking for the compound interest, not the total amount after 2 years. The compound interest can be found by subtracting the original principal from the total amount.

Given: P = Rs 25,000 r = 8% per annum = 0.08 (in decimal) n = 1 (since it doesn't mention that interest is compounded more than once a year) t = 2 years

Let's calculate:

1. Calculate the total amount (A):

A = P(1 + r/n)^(nt) A = 25000(1 + 0.08/1)^(1*2) A = 25000(1 + 0.08)^2 A = 25000 * 1.08^2 A = 25000 * 1.1664 A = Rs 29,160

2. Subtract the original principal to find the compound interest:

Compound Interest = A - P Compound Interest = 29160 - 25000 Compound Interest = Rs 4160

So, the compound interest earned on Rs 25,000 in 2 years at the same rate is Rs 4160.