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A man borrowed Rs. 80000 from a bank at a simple interest of 6% p.a. for 2 years. While clearing his debt, by mistake the bank manager calculated the interest compounded annually at the same rate. How much extra money was he asked to pay?

A man borrowed Rs. 80000 from a bank at a simple interest of 6% p.a. for 2 years. While clearing his debt, by mistake the bank manager calculated the interest compounded annually at the same rate. How much extra money was he asked to pay? Correct Answer Rs. 288

Given, Principal = Rs. 80000, Rate = 6%, time = 2 years

∵ Simple interest = (Principal × Rate × Time)/100

Actual interest to be paid = (80000 × 6 × 2)/100 = Rs. 9600

∵ Compound interest after n years = Principal ×

Interest calculated by bank manager = 80000 × = 80000 × 0.1236 = Rs. 9888

∴ Extra money he was asked to pay = 9888 - 9600 = Rs. 288

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