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2014-11-01T12:56:22+05:30

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Mr Sharma borrowed Rs. 20000 
rate = 18% (simple)
time = 2 years

I = \frac{Ptr}{100} =  \frac{20000*2*18}{100} =Rs.7200

Total amount he will return to Mr Sharma = 20000+7200 = Rs. 27200

Mr. Sharma lent Rs. 20000 
rate = 18% (compound)
time = 2 years
Let the total amount he will get at the end of years = A

A=P(1+r) ^{t} = 20000(1+0.18) ^{2}=20000*1.18 ^{2} \\  \\ A=20000*1.3924=Rs.27848

Gain = amount he will get - amount he will give 
        = Rs. 27848 - Rs. 27200
        = Rs. 648

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2014-11-01T20:23:03+05:30

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The difference between simple interest and compound interest is the interest calculated on the interest accumulated till last year.

Simple Interest for 1 years = 20, 000 * 18/100 * 1 = Rs 3,600

The additional amount gained by compounding interest is
        = Rs 3,600 * 18/100 * 1 year  = Rs 648

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