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Asked in a 1961 paper

Find the Compound Interest on Rs. 15,625 for 9 months at 16% per annum compounded quarterly?

Correct answer: C. Rs. 1951

  • A. Rs. 1851
  • B. Rs. 1941
  • C. Rs. 1951
  • D. Rs. 1961

Explanation

Nine months contains 3 quarterly periods, and the quarterly rate is 16% / 4 = 4%. Compound interest is Rs. 15,625[(1.04)^3 - 1] = Rs. 15,625 x 0.124864 = Rs. 1951. The likely mistake is choosing option b, Rs. 1941, from rounding the quarterly growth factor.

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