Rohit borrows ₹ 86000 from Arun for two years at 5% per annum simple interest. He immediately lends out this money to Akshay at 5% compound interest compounded annually for the same period. Calculate Rohit's profit in transaction at the end of two years.

Given,

P = ₹ 86000

Rate of interest = 5%

Time = 2 years

Calculating S.I. :

S.I. = $\dfrac{P \times R \times T}{100} = \dfrac{86000 \times 5 \times 2}{100}$ = ₹ 8600.

Calculating C.I. :

C.I. = A - P

$C.I. = P\Big(1 + \dfrac{r}{100}\Big)^n - P \\[1em] = 86000 \times \Big(1 + \dfrac{5}{100}\Big)^2 - 86000 \\[1em] = 86000 \times \Big(\dfrac{105}{100}\Big)^2 - 86000 \\[1em] = 86000 \times \Big(\dfrac{21}{20}\Big)^2 - 86000 \\[1em] = 86000 \times \dfrac{441}{400} - 86000 \\[1em] = 94815 - 86000 \\[1em] = ₹ 8815.$

Rohit's profit = Interest received by him - Interest paid by him

= ₹ 8815 - ₹ 8600 = ₹ 215.