Multiple choice

Arun borrowed a certain sum from Sandeep at a certain rate of simple interest for 2 years. He lent this sum to Sunil at the same rate of interest compounded annually for the same period. At the end of two years, he received Rs. 4800 as compound interest but paid Rs. 4000 only as simple interest. Find the rate of interest.

  1. 20%

  2. 10%

  3. 40%

  4. Cannot be determined

  5. 50%
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

For 2 years at rate r%, CI - SI = P × r²/100². Given CI - SI = 4800 - 4000 = 800. Also, SI = P × r × 2/100 = 4000, so P × r = 200000. Then 800 = 200000 × r/100, giving r = 40%. The key insight is the difference between compound and simple interest for 2 years is P(r/100)².

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