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The difference between simple interest and compound interest at the same rate for Rs.5000 for 2 years is Rs. 72. The rate of interest is?

Correct answer: B. 12 %

  • A. 10 %
  • B. 12 %
  • C. 6 %
  • D. 8 %Quiz Mode Feature

Explanation

For 2 years of annual compounding, the difference between compound interest and simple interest is P(r/100)^2. Thus Rs.72 = Rs.5,000 x (r/100)^2, giving (r/100)^2 = 0.0144 and r = 12% per annum. The common mistake is choosing 10% by applying a rough percentage instead of taking the square root.

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