Sehar lent Shazia Rs.1250 for 2 years at an annual compound interest rate of 4%. What would be the loss to Sehar if the interest was calculated using simple interest instead for the same period and rate?

Explanation

The difference between compound interest and simple interest for 2 years at 4% on Rs.1250 is calculated as follows: Compound Interest (CI) is more than Simple Interest (SI) by an amount equal to the loss Sehar would incur if interest was simple. Using the formula, the loss = CI - SI = Rs.2.