A sum is being lent at 12.5 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 = 12.5% per annum
According to the formula:
Amount A = P(1 + r/100)ⁿ
Amount at the end of the first year
= P(1 + 12.5/100)
= P × 1.125
Amount at the end of the second year = P(1.125)²
Ratio:
First Year : Second Year = P × 1.125 : P × (1.125)² = 1 : 1.125 = 8 : 9