The Difference between compound interest, compounding annually, and simple interest on an amount of Rs.500 for 2 years is Rs.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%.
We know that the formulae for the difference between compound interest and simple interest is
Difference = PR2/1002
⇒ 1.25 = 500 × R2/1002
⇒ 12500/500 = R2
⇒ R2 = 25
⇒ R = 5%