Multiple choice

Henry deposited two equal sums in two different banks, in the first bank at a simple interest rate for two years and in other bank at compound interest rate for two years. The difference between the compound interest and simple interest on deposits calculated at the same annual interest rate, was \$25. During the same period, the simple interest earned totals \$250. What is the annual rate of interest at which the deposits were made?

  1. 15%

  2. 18%

  3. 20%

  4. 25%

  5. 30%
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C Correct answer
AI explanation

The difference between compound interest and simple interest for two years is given by the formula Principal x Rate^2 / 100^2, so Principal x Rate^2 / 10000 = 25. The simple interest for two years is Principal x Rate x 2 / 100 = 250, which simplifies to Principal x Rate = 12500. Substituting this into the first equation gives 12500 x Rate / 10000 = 25, meaning Rate = 20%.

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