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If the simple interest on a certain sum of money after 3 1⁄8 years is 1⁄4 of the principal, what is the rate of interest per annum?

Correct answer: C. 8%

  • A. 6%
  • B. 4%
  • C. 8%
  • D. 12%Credit & Lending

Explanation

Using simple interest, SI = P x r x t, so SI/P = r x t. Since SI/P = 1/4 and t = 3 1/8 years = 25/8 years, r = (1/4) ÷ (25/8) = 2/25 = 0.08 = 8% per annum. Option b, 4%, comes from roughly halving the required rate or mishandling the time period.

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