Question

If the compound interest (compounded annually) on a sum of rs.500 is rs. 161.25 after two years, what is the rate of interest p.c.p.a.?

Answer 1

661.25=500(1+r/100)^2
r=15%

Answer 2

The rate of interest p.c.p.a is 15%

Step-by-step explanation:

Principal = Rs.500

Compound interest = Rs.161.25

Amount = Principal + Interest

Amount = 500+161.25=661.25

No. of compounds per year = 1

Time = 2 years  

Let the rate of interest be r

Formula : $A=P(1+\frac{r}{n})^{nt}$

A = amount

P = Principal

t = time in years

r = rate of interest in decimals

n = no. of compounds per year

Substitute the values

$661.25=500(1+\frac{r}{1})^{2}$

$\frac{661.25}{500}=(1+\frac{r}{1})^{2}$

$r=0.15$

Rate of interest in percent = 15%

Hence  the rate of interest p.c.p.a is 15%

#Learn more :

If the compound interest accrued on amount of Rs.14500 in 2 years is Rs.4676.25, what is the rate of interest p.c.p.a. ?

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