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The amount of Rs. 5000 compounded annually with the rate of interest being 5% during the first year and 12% per annum during the second year. What would be interest for 2 years?
1. Rs. 1040
2. Rs. 900
3. Rs. 880
4. Rs. 850

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Correct Answer - Option 3 : Rs. 880

Given:

Principal = Rs. 5000

Rate of interest being 5% during the first year.

Rate of interest being 12% per annum during second year.

Formula used:

Interest = r% of P

Calculation:

Interest after first year = 5% of 5000

⇒ (5 × 5000)/100

⇒ Rs. 250

Amount after one year = 5000 + 250 = Rs. 5250

Interest after first year = 12 % of 5250

⇒ (12 × 5250)/100

⇒ Rs . 630

Total interest in two years = 250 + 630 = Rs. 880

∴ Total interest in two years is Rs. 880.

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