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Quantitative Reasoning – Practice – Simple Interest or Compound Interest!!!

simple interest CI

PSA_LEVEL-UP_QNR23. Ramesh needed to invest Rs 20,000. After talking to his father he got two options: invest in (a) Bank FDHC at the rate of 12% SI for 3 years and (b) bank CICI at the rate of 10% compound interest for 3 years. Ramesh tries to find out the better option and he gets going. Which option did he choose and by how much was it better than the other?

(i) Investment option (a), Rs. 500
(ii) Investment option (b), Rs. 500
(iii) Investment option (b), Rs. 580
(iv) Investment option (a), Rs. 580

Ans:

Investment option (a):

Principal, P=20,000; T= 3 years; R= 12% per annum

SI= PRT/100 = 20,000*12*3/100
=7200

Investment option (b):

Principal, P=20,000; T= 3 years; R= 10% per annum

Amount in compound interest is given by = P(1+R/100)^T
=20,000(1+10/100)^3
=20,000(1.1)^3
=20,000(1.331)
=26620

Compound interest = Amount – Prinicipal = 26620-20000= 6620.

Investment option (a)  is better than Investment option (b)  as it yields 7200-6620 or 580 more after 3 years. Option (iv).

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