Q.Find the difference between the compound interest and the simple interest on ₹20,000 at 5% per annum for 2 years.

For 2 years the gap is exactly $P\left(\tfrac{r}{100}\right)^2$; compute both to confirm.

Simple interest:

Compound interest:

Difference:

$\text{CI}-\text{SI}=2050-2000=₹50.$ …

Shortcut: $\text{CI}-\text{SI}=P\left(\dfrac{r}{100}\right)^{2}=20000\times0.002 …

Using the shortcut $P(r/100)^2$ for a period other than 2 years — it holds only for $n=2$. For longer perio …