What is the difference in compound interest on Rs. 5000 for 1.5 years at an annual rate of 4% when compounded annually versus semi-annually?

Explanation

Calculate the compound interest when compounded annually: CI = 5000 × (1 + 0.04)^(1) × (1 + 0.02)^(0.5) = Rs. 5304 approximately. When compounded semi-annually, the rate per half-year is 2%, and the number of half-years is 3, so CI = 5000 × (1 + 0.02)^3 = Rs. 5306.04. The difference between the two compound interests is Rs. 5306.04 - Rs. 5304 = Rs. 2.04.