Multiple choice

A certain sum of money is invested at 8% compound interest. If the compound interest for the first year is Rs. 100, find the compound interest for the 3rd year ________________.

  1. Rs. 116.64

  2. Rs. 116.00

  3. Rs. 120

  4. Rs. 108
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A Correct answer
Explanation

Principal P. Interest for 1st year = P * 0.08 = 100, so P = 1250. Amount after 1st year = 1350. Interest for 2nd year = 1350 * 0.08 = 108. Amount after 2nd year = 1350 + 108 = 1458. Interest for 3rd year = 1458 * 0.08 = 116.64.

AI explanation

The sum of money equals the first year's interest divided by the rate, so 100 divided by 0.08 equals Rs. 1250. The compound interest for the third year is equivalent to the total amount accumulated after two years multiplied by the interest rate. The amount after two years is 1250 multiplied by 1.08 squared, which is Rs. 1458. Multiplying this amount by 8% gives the third year's interest of Rs. 116.64.

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