George invested a sum of money of Rs. 13000 in a scheme that works on the principle of compound interest. The rate of interest is 20% per annum. After 2 years, it was notified that the scheme will now work on the principle of simple interest. After further 2 years, George withdrew all the money from investment. Due to pre mature withdrawal, a penalty of Rs. 1000 was charged. How much money will George get?
Solution
Correct Answer: Option A
Money invested by George is Rs. 13000 for 2 years at 20% per annum in compound interest.
We know, in case of compound interest,
\(Amount = Principal \times {\left( {1 + \;\frac{{Rate}}{{100}}} \right)^{\;Time}}\)
Amount George will have after 2 years = 13000 × (1 + (20/100))2 = Rs. 18720
After 2 years, it was notified that the scheme will now work on the principle of simple interest. After further 2 years, George withdrew all the money from investment.
⇒ For next 2 years, George has invested Rs. 18720 at 20% per annum in simple interest.
We know, in case of simple interest,
\(Amount = Principal + \;\frac{{\left( {Principal \times Rate \times Time} \right)}}{{100}}\)
Amount George will have after next 2 years = 18720 + [(18720 × 20 × 2)/100] = Rs. 26208
Due to pre mature withdrawal, a penalty of Rs. 1000 was charged.
Amount of money that George will get = Rs. 26208 – Rs. 1000 = Rs. 25208
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