A sum of money amounts to ₹1,200 in 2 years and becomes ₹1,260 in 3 years at compound interest, when interest is compounded annually. What is the rate of compound interest per annum?
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. 5%.
Given:
A sum of money amounts to ₹1,200 in 2 years and becomes ₹1,260 in 3 years at compound interest
Calculations:
For 1 year, the Compound interest will be like simple interest
Difference between the amount of 3rd and 2nd year = Interest = 1260 - 1200 = 60
⇒ Interest = (Principal × Rate × time)/100
⇒ 60 = (1200 × 1 × R)/100
⇒ R = 60/12 = 5%