Multiple choice

Ram gets 125% return on his investment after two years by investing in scheme A offering interest compounded annually. What will be the percent return received by him, if he invests in another scheme offering half rate of interest as that of scheme A compounded half yearly at the end of 2 years?

  1. 60.18%

  2. 55.14%

  3. 51.25%

  4. 48.75%

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

Scheme A: (1+r/100)^2 = 2.25 => 1+r/100 = 1.5 => r = 50%. Scheme B: Rate = 25%, compounded half-yearly for 2 years (4 periods). Amount = P * (1 + 12.5/100)^4 = P * (1.125)^4 = P * 1.6018. Return = 60.18%.

AI explanation

Given the 125% return over two years, the annual compound interest factor is the square root of 2.25, which is 1.5, meaning the annual rate is 50%. The new scheme offers half of this rate, which is 25% compounded half yearly, resulting in a periodic rate of 12.5% over four periods. The final amount factor is 1.125 raised to the power of 4, which is approximately 1.6018. The percent return is (1.6018 minus 1) times 100, resulting in 60.18%.

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