The 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?
Show answer & explanation
Correct answer: D
Explanation
The correct answer is Option 4 i.e. 5%
Given that
Principal amount = ₹ 500
Time = 2 years
C.I. - S.I. = ₹ 1.25
Formula used
For 2 years
C.I. - S.I. = P(R/100)2
Calculation
⇒ 1.25 = 500 (R/100)2
⇒ (R/100)2 = 0.0025
⇒ R/100 = 0.05
⇒ R = 5%