Question

At what rate of compound interest p.a. will Rs1250 amount to Rs1800 in two years?

Answer 1

Answer:

Answer is 20% per annum

Step-by-step explanation:

Total interest for two years = 1800 - 1250 = 550

Effective Rate of Interest :

= 550/1250 x 100 = 44%

Let the Normal Rate of Interest = x%

Using the relation A + B + AB/100

x + x + x^2/100 = 44

x^2 + 200x - 4400 = 0

X^2 + 220x - 20x - 4400 = 0

x(x + 220) - 20(x + 220) = 0

(x - 20)(x + 220) = 0

x = 20 or x = -220

But rate of interest can't be negative.

=> x = 20%

Note : For experienced users, the figure 44 should immediately indicate :

A = B = 20

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Same conclusion can be reached by using Compound Interest formula :

A = P(1 + r/100)^n

1800 = 1250(1 + r/100)^2

180/125 = (1 + r/100)^2

=> 6/5 = (1 + r/100)

=> r/100 = 6/5 - 1 = 1/5

=> r = 20%