Question

A Sum compounded annually becomes (25/16) times of itself in 2 years. Determine the rate of interest per annum ?

Answer 1

Formula:

A = P [1 + R/100]^n   ... [A-amount, P-principal, R-rate of interest, n-number of years]

Lets assume P = 16

Hence, A = 25/16 * P = 25 for '2 years'

Substituting the values in formula:

25 = 16 [1 + R/100]^2

25/16 = [1 + R/100]^2

Taking square root on both sides

Root(25)/Root(16) = Root{ [1 + R/100] }^2

5/4 = 1 + R/100

5/4 - 1 = R/100

5-4/4 = R/100

1/4 = R/100

R = 100/4 = 25%

Hence, rate of interest per annum = 25%

Hope it helps