Multiple choice

If the difference between compound interest and simple interest on a certain amount for 2 years is 1/100 of the principal invested, the rate of interest is

  1. 8%

  2. 5%

  3. 6%

  4. 10%

  5. 9%
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

For 2 years, the difference between CI and SI is P * (r/100)^2. Given this difference is P/100, we have P * (r/100)^2 = P/100. Thus, (r/100)^2 = 1/100, which means r/100 = 1/10, so r = 10%.

AI explanation

For a period of 2 years, the difference between compound interest and simple interest is expressed by the formula (Principal * Rate^2) / 10000. The problem states this difference equals 1/100 of the principal, so we set (Principal * Rate^2) / 10000 = Principal / 100. Canceling the principal from both sides leaves Rate^2 / 10000 = 1 / 100, which simplifies to Rate^2 = 100. Taking the positive square root gives the rate as 10%.

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