Question

Jackie wants to buy a new van for work.

She wants to borrow £7,500 to buy the van and looks at two bank loans for this amount.

an image

Formula for simple interest is: I=PRT100
I
=
P
R
T
100

Formula for compound interest is: A=P(1+r100
A
=
P
(
1
+
r
100
)n
n

What is the difference in the interest charged between the two banks?

Answer 1

Answer: The interest rates charged in both formulas are different.

Explanation:

To begin with, the simple interest = PRT/100

In this, the interest is the same as the number of years.

For example, P=10,000 R=10% T=2yrs

SI = PRT/100

= 10,000*10*2/100

= 2000

This rupee 2000 is the same interest for two years.

compound interest = A= P(1+r/100)^n

In this, the interest changes every year up to the period of time.

For example, P= 10,000 R=10% N=2yrs

A= 10,000(1+10/100)^2

= 10,000*11/10*11/10

= 12100

I= A-P

=12100-10000

= 2100

This interest varies for 2 years.