Multiple choice

An investor is faced with a dilemma about where to invest his savings of 10 lakhs. Scheme A gives 10% interest compounded annually for 2 years and simple interest of 20% for the next 3 years. If the amount has increased less than 60%, additional 10% is also added to it. Scheme B gives a simple interest of 10% for 2 years and compound interest of 20% for 3 years compounded annually. If the amount has increased less than 50%, additional 15% is added to it. If the investor goes with the right choice, how much does he earn over his initial investment ?

  1. 1994000

  2. 1073600

  3. 987600

  4. 1023000

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

Scheme A: 10 lakhs grows by 10% for 2 years (1.1^2 = 1.21) then 20% simple interest for 3 years (1 + 0.2*3 = 1.6). Total multiplier = 1.21 * 1.6 = 1.936. Scheme B: 10 lakhs grows by 10% simple for 2 years (1 + 0.1*2 = 1.2) then 20% compound for 3 years (1.2^3 = 1.728). Total multiplier = 1.2 * 1.728 = 2.0736. Scheme B yields 20,73,600, so the earnings are 10,73,600.

AI explanation

For Scheme A, 10 lakhs grows at 10% compound interest for 2 years to 1210000, and then grows at 20% simple interest for 3 years by an additional 726000 to reach 1936000, an increase of 93.6%. For Scheme B, 10 lakhs grows at 10% simple interest for 2 years to 1200000, and then grows at 20% compound interest for 3 years to 2073600, an increase of 107.36%. Because Scheme B is the better choice and its increase is greater than 50%, no bonus is added, so the earnings over the initial investment are 2073600 minus 1000000, yielding 1073600.

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