What is the difference between simple interest and compound interest for a period of 2 years at a rate of 10%?

Solution: Each period is one month long, so the length of time for one period is 1/12 of a year. The interest earned for one period will be I = P × r × ( 1/12). This is the same as we found in Example 1.

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Definition of Simple and Compound Interest
Solved Examples
Frequently Asked Questions – FAQs
What is the main difference between simple interest and compound interest?
What is the formula for Simple interest?
What is the formula for compound interest?
What is the formula for the amount if it is compounded annually?
What is the difference between simple interest and compound interest for a period of 2 years at rate of 10%?
What is the difference between simple interest and compound interest for a period of 2 years at the rate of 10% per annum on the sum of dollar 60000?
What is the difference between simple interest and compound interest for a period of 2 years?
What will be the difference between SI and CI at 10%?

In general, if there are m periods in a year, the length of time for each period will be (1/m) of a year. The interest earned in one period will be I = P(r/m).

The periodic interest rate, then, is r/m. We can let I be the periodic interest amount and i = r/m. So the interest earned in one period Is I = Pi. That means the amount of money in an interest-earning account at the end of a period is P + Pi. This looks just like the simple interest formula except the interest rate r is replaced by the periodic interest rate i = r/m.

If an account earns interest compounded every six months, the periodic interest rate per each six-month period is i = 12%/2 = 6%. If the account earns interest compounded quarterly, or four times a year, the periodic interest rate is i = 12%/4 = 3%. Many accounts earn interest each month, so i = r/12.

The major difference between simple interest and compound interest is that simple interest is based on principal amount whereas compound interest is based on the principal amount and the interest compounded for a cycle of the period.

We know that simple interest and the compound interest are the two important concepts widely used in many financial services most especially in banking purposes. Loans such as instalments loans, auto loans, educational loans, mortgages use simple interest. The compound interest is used by most of the savings account as it pays the interest. It pays more than the simple interest. In this article, let us discuss the difference between the simple interest and the compound interest in detail.

Definition of Simple and Compound Interest

Simple Interest: The simple interest can be defined as the principal amount of loan or deposit, a person makes into their bank account.

Compound Interest: The Compound interest is simply the interest that accumulates and compounds over the principal amount.

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Below you can find the key differences between Simple Interest and Compound Interest in the tabular column below:

Simple Interest and Compound Interest Differences
Parameter	Simple Interest	Compound Interest
Definition	Simple Interest can be defined as the sum paid back for using the borrowed money, over a fixed period of time.	Compound Interest can be defined as when the sum principal amount exceeds the due date for payment along with the rate of interest, for a period of time.
Formula	S.I. = (P × T × R) ⁄ 100	C.I. = P(1+R⁄100)t − P
Return Amount	The return is much lesser when compared to Compound Interest.	The return is much higher.
Principal Amount	The principal amount is constant	The principal amount keeps on varying during the entire borrowing period
Growth	The growth remains quite uniform in this method.	The growth increases quite rapidly in this method.
Interest Charged	The interest charged on is for the principal amount.	The interest charged on it is for the principal and accumulated interest.

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Solved Examples

Q.1: Amita borrowed Rs 50,000 for 3 years at a rate of 3.5% per annum. Find the simple interest.
Solution:Given,
P = Rs 50,000
R = 3.5%
T = 3 years
SI = (P × R ×T) / 100
SI = (50,000× 3.5 ×3) / 100 = Rs 5250

Q.2: The count of a population of men was found to increase at the rate of 2% per hour. Find the count at the end of 2 hours if the initial count was 600000.
Solution: Since the population of men increases at the rate of 2% per hour, we use the formula
A = P(1 + R/100)n
Thus, the population at the end of 2 hours = 600000(1 + 2/100)2
= 600000(1 + 0.02)2
= 600000(1.02)2
= 624240

Frequently Asked Questions – FAQs

What is the main difference between simple interest and compound interest?

Simple interest is computed on the principal amount or loan amount whereas compound interest is computed based on the principal amount as well as the interest accumulated for a certain period or previous period.

What is the formula for Simple interest?

The formula for simple interest is given by:
SI = (PxRxT)/100
where SI = Simple Interest
P = Principal Amount
R = Rate of interest
T = Time Duration in years

What is the formula for compound interest?

The formula for compound interest is given by:
CI = Amount – Principal
And Amount = P(1+r/n)nt

What is the formula for the amount if it is compounded annually?

If the amount is compounded annually, the amount is given as:
A = P(1+R/100)t

What is the difference between simple interest and compound interest for a period of 2 years at rate of 10%?

The difference between C.I and S.I for 2 years at 10% per annum is Rs. 50 .

What is the difference between simple interest and compound interest for a period of 2 years at the rate of 10% per annum on the sum of dollar 60000?

The difference between compound interest and simple interest on a sum of 2 years at 10% per annum, when the interest is compounded annually is Rs. 16. If the interest were compounded half yearly, the difference in two interests would be.

What is the difference between simple interest and compound interest for a period of 2 years?

Generally, simple interest paid or received over a certain period is a fixed percentage of the principal amount that was borrowed or lent. Compound interest accrues and is added to the accumulated interest of previous periods, so borrowers must pay interest on interest as well as principal.