Question

Given that the interest is only earned on principal, if an investment of rs.1000.00 amount to rs.1440.00 in two years, then what is the rate of interest earned?

Answer 1

Amount = Simple Interest + Principal
i.e. Simple Interest = Amount - principal
So. S.I. = 1440 - 1000 = 440
And also Simple Interest = (P*N*R)/100
So 440 = 20 * R
implies R = 22.

Answer 2

Given: Investement (Principal) = Rs 1,000

           Amount (Principal + Interest) = Rs. 1,440

           Time = 2 years

To find: Rate of interest

Let: Rate of interest be $r$

Solution: According to the given question,

The interest is only earned on principal, which means that the interest applied is Simple Interest. (Simple interest is earned only on principal)

∵ $Interest = Amount - Principal$

⇒ $1,440 - 1,000 = 440$

∵ $Simple \ interest = \frac{Principal \ * \ Rate \ * \ Time}{100}$

⇒ $440 = \frac{1,000 \ * \ r \ * \ 2}{100}$

⇒ $r = \frac{440 \ * \ 100}{1,000 \ * \ 2} = 22$

Hence, the rate of interest earned is 22%.