The difference between compound interest (compounding annually) and simple interest on a sum of Rs. 10,00,000 for 2 years is Rs. 2401. Find the rate of interest per annum.
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. 4.9%.
The principal amount (P) = Rs. 10,00,000
Total time (T) = 2 years
The difference between compound interest and simple interest (X) = Rs. 2,401
The difference between compound interest (CI) and simple interest (SI) for two years = P × (R/100)2
So, 2401 = 1000000 × (R/100)2
⇒ 2401 = 1000000 × (R2/10000)
⇒ 2401 = 100R2
⇒ R2 = 2401/100
⇒ R = √(2401/100) = 49/10 = 4.9
Therefore, the rate of interest per annum is 4.9%.