Multiple choice

A sum of money is invested at compound interest payable annually. The interest in the first two successive years is Rs. 2000 and Rs. 2500 respectively. Find the rate of interest.

  1. 15%

  2. 25%

  3. 20%

  4. 30%
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Let the principal be P and rate be r. Interest for year 1 = Pr = 2000. Interest for year 2 = (P + Pr)r = 2500. So, Pr + Pr^2 = 2500. Substituting Pr = 2000, we get 2000 + 2000r = 2500, so 2000r = 500, r = 0.25 or 25%.

AI explanation

In compound interest, the interest earned during any year acts as the principal for calculating the additional interest for the next year. The interest for the second year is 2500, which is 500 more than the first year's interest of 2000. The rate of interest is calculated as the increase in interest divided by the first year's interest, so Rate = (500 / 2000) * 100, which equals 25%.

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