Download the Problem of Simple and Compound Interest MCQs with Free PDF for PPSC, FPSC, PMS, NTS, KPKPSC, and SPSC exam
Simple interest is calculated on the principal amount only, while compound interest is calculated on the principal amount and the interest that has accrued over time. This means that compound interest earns interest on interest, which can lead to much larger returns over time than simple interest.
The formula for simple interest is:
where:
- SI is the simple interest
- P is the principal amount
- R is the interest rate
- T is the time in years
For example, if you invest $100 at an interest rate of 5% for 5 years, you will earn $25 in simple interest.
The formula for compound interest is:
where:
- CI is the compound interest
- P is the principal amount
- R is the interest rate
- T is the time in years
For example, if you invest $100 at an interest rate of 5% compounded annually, you will have $127.63 after 5 years.
The main difference between simple interest and compound interest is that compound interest earns interest on interest, while simple interest does not. This means that compound interest can lead to much larger returns over time.
Here is a table showing the difference between simple interest and compound interest:
