A sum is being lent at 10 percent per annum compound interest (compounding annually). What is the ratio of amount at the end of first year to the amount at the end of second year?
Show answer & explanation
Correct answer: A
Explanation
Given:
Interest rate = 10% per annum
Formula:
Amount = P(1 + R/100)²
Amount at the end of the first year = P(1 + 10/100)² = 1.1P
Amount at the end of the second year = P(1 + 10/100)² = 1.21P
Ratio = 1.1P : 1.21P
= 110 : 121
= 10: 11