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Compound interest earned on a sum for the second and the third years are Rs.1200 and Rs.1440 respectively. Find the rate of interest?

Correct answer: C. 20% p.a.

  • A. 18% p.a.
  • B. 22% p.a.
  • C. 20% p.a.
  • D. 24% p.a.
  • E. None of these.

Explanation

The third year's compound interest equals the second year's interest multiplied by 1 + r, because the second-year interest also earns interest in the third year. Thus 1 + r = Rs. 1,440/Rs. 1,200 = 1.2, giving r = 0.20 or 20% per year. Option a, 18% per year, does not produce the stated ratio of consecutive yearly interests.

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