alleryFor the same principal, rate and a period of one year, compound interest compounded annually is:
AAlways greater than simple interest
BAlways less than simple interest
CEqual to simple interest
DExactly double the simple interest
Answer & Solution
Correct answer: C. Equal to simple interest
1. Compounding only bites when interest is charged on interest already added.
2. Over a single year no interest has yet been added to the principal.
3. So the base for the whole year is the original principal in both methods.
4. The two therefore give the same figure at the end of one year.
5. From the second year onward, compound interest pulls ahead because the base has grown.
_Source: syllabus Maths, Ch 7 'Comparing Quantities', S7.4 Compound Interest_
Keep practising Interest
Browse all Interest questions for AFCAT, or explore more Quantitative Aptitude topics.
Related questions
At simple interest, a sum doubles itself in 8 years. The annual rate is:Find the simple interest on 5,000 at 8% per annum for 3 years.For 10,000 at 10% per annum for 2 years, compound interest exceeds simple interest by:20,000 is borrowed for 2 years at 8% compounded annually. The compound interest is:Compound interest differs from simple interest because compound interest is calculated on:Find the simple interest on 15,000 at 5% per annum for 2 years.A sum of 10,000 is borrowed at 15% per annum simple interest for 2 years. The amount repayInterest, in the banking sense, is best described as: