Amit borrowed a sum of Rs.25,000 on simple interest. Bhola borrowed the same amount on compound interest (interest compounded yearly). At the end of 2 years, Bhola had to pay Rs.160 more interest than amit. The rate of interest charged per annum is:
Show answer & explanation
Correct answer: B
Explanation
The correct answer is Option 2 i.e. 8%.
Difference of C.I. and S.I. = 160
p(1 + r/100)t - p - prt/100 = 160
p = 25000
t = 2 years
25000(1 + r/100)2 - 25000 - (25000 × r × 2)/100 = 160
25000(1 + (r/100)2 + 2r/100) - 25000 - (25000 × r × 2)/100 = 160
25000 × (r/100)2 = 160
r2 = 160/2.5
r2 = 64
r = 8%