Shivalik College of Engineering
Q1. Write down the advantages of Compound Interest over Simple Interest?
The advantages of compound interest over simple interest are as follows-:
Firstly, in S.I interest is calculated as a percentage of the principal amount whereas in C.I interest is calculated as a
percentage of principal and accrued interest giving higher amount at the end of the period.
Secondly, return on compound interest is higher as compared to the return on Simple Interest.
Thirdly, growth of money in compound interest is rapid as compared to the uniform growth of Simple interest.
Fourthly, interest is charged on principal + accumulated interest in compound interest whereas interest is charged on
constant principal in simple interest therefore compound interest generates more money.
Fifthly, C.I generates a higher amount as compared to that of S.I in same period.
The following example will explain the difference between the simple and the compound interest.
Example: A person has taken a loan of amount of Rs. 10,000 from a bank for a period of 5 years. Estimate the amount of
money, the person will repay to the bank at the end of every year for 5 years for the following cases;
a) Considering simple interest rate of 8% per year
b) Considering compound interest rate of 8% per year
Payment using simple interest
Payment using compound interest
Q2. Write down the advantages of Simple Interest over Compound Interest?