Multiple choice

A person lent out a certain sum on simple interest and the same sum on compound interest at a certain rate of interest per annum. He noticed that the ratio between the difference of compound interest and simple interest of 3 years and that of 2 years is 25 : 8. The rate of interest per annum is

  1. 10%

  2. 11%

  3. 12%

  4. 12 .5%

  5. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Difference for 2 years = P(r/100)^2. Difference for 3 years = P(r/100)^2 * (3 + r/100). Ratio = (3 + r/100) = 25/8. r/100 = 25/8 - 3 = 1/8. r = 12.5%.

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