If the simple interest on a sum of money at 5% per annum for 3 years is Rs. 1200 then the compound interest on the same sum for the same period at the same rate will be
Interest rate, R = 5% per annum
Time = 3 years
Simple interest = Rs.1200
Simple interest = PRT/100
⇒ 1200 = (P × 5 × 3)/100
⇒ 1200 = P × 15/100
⇒ P = 1200 × 100/15
⇒ P = 8000
Now,
Amount (A) = P (1 + R/100)n
= 8000 (1 + 5/100)3
= 8000 (1 + 1/20)3
= 8000 (21/20)3
= 8000 × 9261/8000
= 9261
∴ Amount = 9261
∴ Compound interest = Rs.(9261 – 8000) [∵CI = A – P]
= Rs.1261