Question

The difference between simple interest and compound interest on ₹ 20,000 in two years is ₹ 800. What is the annual rate of interest?
1. 30%
2. 15%
3. 25%
4. 20%

Answer 1

Correct Answer - Option 4 : 20%

Given:

Principal = Rs. 20,000

CI – SI = Rs. 800

Time = 2 years

Formula used:

SI = (P × R × T)/100

CI = P [(1 + r/100)ⁿ – 1]

Calculation:

Let the rate be r

According to the question

SI = (20,000 × r × 2)/100

⇒ CI = 20,000 [(1 + r/100)² – 1 – 2r/100] = 800 

⇒ 20,000(r²/10000) = 800

⇒ 2r² = 800%

⇒ r² = 400%

⇒ r = 20%

∴ The value of r is 20%