If the rate of Compound interest and Simple interest is the same and the difference between the interest earned on a principal of $8000 over 2 years is $180, find the interest rate.
The Usual Method
Let the rate of interest be ‘r’%.
Simple interest earned over two years
Compound interest earned over two years
Hence, difference is given by
– = 180
Estimated Time to arrive at the answer = 90 seconds.
Remember that the difference of $180 is nothing but the interest on interest earned in the 2nd year.
Interest earned in 1st year by Compound as well as Simple is the same = 80r
Interest earned on this interest in the next year =
% i.e option ‘2’.
Estimated Time to arrive at the answer = 10 seconds.