Correct Answer - Option 2 : 5%

**Given:**

Seema invested an amount of Rs 16000/- for two years at compound interest and received an amount of Rs 17640/- on maturity.

Formula used:

Amount = Principal(1 + R/100)T

R = rate, T = time

Calculation:

According to the question,

Amount = Principal(1 + R/100)T

⇒ 17640 = 16000(1 + R/100)^{2}

⇒ 17640/16000 = (1 + R/100)^{2}

⇒ 1 + R/100 = √(1764/1600)

⇒ 1 + R/100 = 42/40

⇒ R/100 = (42/40) – 1

⇒ R = (2/40)× 100

⇒ R = 5%

**∴ The rate of interest is 5%.**