A principal amount earns Rs. 50 as simple interest over 2 years at an annual rate of 5%. What will be the compound interest on the same principal, at the same rate and time period?

Explanation

First, calculate the principal: Principal = (Simple Interest × 100) / (Rate × Time) = (50 × 100) / (5 × 2) = Rs. 500. Then, compute the amount with compound interest: Amount = 500 × (1 + 5/100)^2 = 500 × 1.1025 = Rs. 551.25. Finally, compound interest = Amount - Principal = 551.25 - 500 = Rs. 51.25.