Question
Download Solution PDFThe Difference between compound interest, compounding annually and simple interest on an amount of ₹500 for 2 years is ₹1.25. What is the rate of interest per annum?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFGiven data:
Principal (P) = ₹500
Time (T) = 2 years
Difference between compound interest and simple interest (CI - SI) = ₹1.25
Concept Used:
The difference between compound interest and simple interest for two years is
given by the formula CI - SI = P × (r/100)²,
where r is the rate of interest.
Calculation:
⇒ Rate of interest (r) = √((CI - SI) × 100² / P)
⇒ Rate of interest (r) = √((1.25 × 100²)/500) = 5%
Hence, the rate of interest per annum is 5%.
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