A sum of ₹10,000 amounts to ₹12,321 in 2 years at a certain rate of interest per annum, compounded annually. The rate of interest per annum is:
- AOption (a)
14%
- BOption (b)
15%
- COption (c)
11%
- DOption (d)
10%
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Correct answer
11%
Why this answer is correct
Shortcut Trick
For Compound Interest, the multiplying factor over 2 years is the square of the annual factor.
Ratio of Amount to Principal (A/P) = 12321 / 10000
Annual multiplier = √(12321 / 10000) = 111 / 100
Rate % = ((111 − 100) / 100) × 100% = 11%
∴ The correct answer is 11%.
Alternate Method
P = ₹10,000
A = ₹12,321
t = 0
t = 2 years
Rate = R% p.a.
Given:
Principal (P) = ₹10,000
Amount (A) = ₹12,321
Time (n) = 2 years
Formula Used:
Amount (A) = P × (1 + R/100)n
Calculations:
⇒ 12321 = 10000 × (1 + R/100)2
⇒ 12321 / 10000 = (1 + R/100)2
⇒ √(12321 / 10000) = 1 + R/100
⇒ 111 / 100 = 1 + R/100
⇒ R/100 = 111/100 − 1
⇒ R/100 = 11 / 100
⇒ R = 11%
∴ The correct answer is 11%.
Additional Information
CI vs SI Difference Formula
For 2 years, the difference between CI and SI is given by: D = P × (R/100)2. For 3 years, D = P × (R/100)2 × (3 + R/100).
Half-Yearly Compounding
If the interest is compounded half-yearly, the Rate becomes R/2 and the Time period becomes 2n.
Effective Rate for 2 Years
The effective compound interest rate for 2 years at R% p.a. can be calculated directly as: (2R + R2/100)%.