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Afnan wants to borrow Rs.6000 at rate of interest 6% p.a. at S.I and lend the same amount at C.I at same rate of interest for two years. What would be his income in the above transaction?

Correct answer: A. Rs.21.60

  • A. Rs.21.60
  • B. Rs.24.00
  • C. Rs.25.20
  • D. Rs.27.80
  • E. None of these

Explanation

The simple-interest borrowing cost is Rs. 6,000 x 6% x 2 = Rs. 720. The lending return is Rs. 6,000 x [(1.06)^2 - 1] = Rs. 741.60, so the income is Rs. 741.60 - Rs. 720 = Rs. 21.60. Option b, Rs. 24.00, results from treating the two-year compound return as exactly two simple-interest amounts.

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