What is the difference between compound interest and simple

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What is the difference between compound interest and simple interest for 2 yr on the sum of ₹ 1250 at 4% pa?

1. ₹ 3
2. ₹ 4
3. ₹ 2
4. ₹ 8

Correct Option: C

Given, P = ₹ 1250, n = 2 yr and R = 4%
According to the formula,
Difference between compound interest and simple interest = PR²/100²
∴ Required difference = (1250 x 4 x 4)/(100 x 100) = ₹ 2