What is the difference between compound interest on 5,000 for 1 1 2 years at 4%

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Question

What is the difference between compound interest on 5,000 for 1 1 2 years at 4% per annum according as the interest is compounded yearly or halfyearly?

Options:

A . 4.80

B . 2.04

C . 8.30

D . 3.06

Answer: Option D
Answer: (d)Compound Interest (when compounded yearly)= $5000(1 + 4/100)^(1.5) - 5000$= $5000(26/25)^(1.5) - 5000$= 5302.9805 - 5000 = Rs.302.9805C.I. (When compounded halfyearly).= $5000(1 + 2/100)^3 - 50000$= 5306.04 - 5000 = Rs.306.04Required difference= Rs.(306.04 - 302.9805)= Rs.3.059 = Rs.3.06

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