Question

Fabina borrows Rs.12,500 per annum for 3 years at simple interest and Radha borrows the same amount for the same time period at 10% per annum, compounded annually. Who pays more interest and by how much?

Answer 1

Answer: Radha pays $387.50 more interest than Fabina

Explanation:

Fabina

Simple Interest: I = P × r × t

= 12500 × 0.10 × 3

= $3750.00

Radha

`\text{Compound Interest:}\ A = P(1+r)^t\\.\qquad \qquad \qquad \qquad \qquad =12500(1+0.10)^3\\.\qquad \qquad \qquad \qquad \qquad =12500(1.10)^3\\.\qquad \qquad \qquad \qquad \qquad =16637.50`

16637.50 - 12500 = $4137.50

4137.50 - 3750.00 = $387.50