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What will be ratio of simple to compound interest on two same sums invested in SBP at rate of interest of 8% kept for 3 years?

Correct answer: A. 1875/2029

  • A. 1875/2029
  • B. 1/2.5
  • C. 1903/2156
  • D. 4/9

Explanation

For a principal P at 8% for 3 years, simple interest is P x 0.08 x 3 = 0.24P, while compound interest is P[(1.08)³ - 1] = P x 0.259712. Their ratio is 0.24P/0.259712P = 240000/259712 = 1875/2029. Students may choose 4/9 by using an unrelated ratio or by ignoring the compound-growth factor.

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