Multiple choice

If the compound interest, on a certain sum, in the second year is Rs.420 and in the third year is Rs.462, what is the rate of interest?

  1. 8%

  2. 10%

  3. 12%

  4. 15%
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Interest in 2nd year = P(1+r)^1 * r = 420. Interest in 3rd year = P(1+r)^2 * r = 462. The ratio (Interest 3rd / Interest 2nd) = (1+r) = 462/420 = 1.1. Thus, r = 0.1 or 10%.

AI explanation

The difference between the compound interest of the third year and the second year represents the interest earned on the second year's interest. We calculate the rate by dividing the difference of 462 and 420 by 420, giving 42 divided by 420. This simplifies to 0.10, which means the rate of interest is 10%.

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