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### Question

What is the difference in compound interest and simple interest on an amount of Rs. 40000 for a period of 2 years if the rate is 7% p.a. compounded annually?

**A**

Rs. 196.

**B**

Rs. 296.

**C**

Rs. 246.

**D**

Rs. 396.

**Soln.**

**Ans: a**

The shortcut formula for the difference between compound and simple interest over a period of 2 years is $Difference = Principal × (\text"rate"/100)^2$, which equals $(40000 × 7^2)/10000$ = Rs. 196.