Multiple choice

A sum is lent out at 10% per annum compound interest rate.What is the ratio of amount at the end of third and fourth year?

  1. 8 : 9

  2. 7 : 8

  3. 9 : 10

  4. 10 : 11

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

Amount at end of year n = P(1 + r)^n where r = 10% = 0.1. Ratio of 4th year to 3rd year: P(1.1)^4 ÷ P(1.1)^3 = 1.1 = 11/10. The principal P and earlier powers cancel out, leaving only (1 + r).

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