A sum of ₹10,000 amounts to ₹11,025 in 2 years at a certain rate of interest per annum, compounded annually. The rate of interest per annum is:
- AOption (a)
3%
- BOption (b)
4%
- COption (c)
5%
- DOption (d)
6%
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Correct answer
5%
Why this answer is correct
Shortcut Trick
For Compound Interest over 2 years, the ratio of Amount (A) to Principal (P) is the square of the multiplier (1 + R/100).
Ratio A/P = 11025 ÷ 10000 = 441 ÷ 400
For 1 year, multiplier = √(441 ÷ 400) = 21 ÷ 20
Interest on 1 unit = 21 − 20 = 1 unit
Rate % = (1 ÷ 20) × 100% = 5%
∴ The correct answer is 5%.
Alternate Method
Given:
Principal (P) = ₹10,000
Amount (A) = ₹11,025
Time (n) = 2 years
Formula Used:
A = P(1 + R/100)n
Calculations:
⇒ 11025 = 10000(1 + R/100)2
⇒ 11025 ÷ 10000 = (1 + R/100)2
⇒ 1.1025 = (1 + R/100)2
⇒ √1.1025 = 1 + R/100
⇒ 1.05 = 1 + R/100
⇒ R/100 = 1.05 − 1
⇒ R/100 = 0.05
⇒ R = 0.05 × 100 = 5%
∴ The correct answer is 5%.
Additional Information
Effective Rate of Interest
For a rate R% compounded annually for 2 years, the effective rate is given by R + R + (R × R) ÷ 100.
CI and SI Difference
The difference between Compound Interest and Simple Interest for 2 years is D = P × (R ÷ 100)2.
Rule of 72
To find the approximate time required to double an investment, divide 72 by the annual rate of interest (n ≈ 72 ÷ R).


