A sum of money, when invested at a certain rate of compound interest per year, became 1.21 times the sum invested on maturity after two years. What was the rate of compound interest per annum?
1. 11%
2. 10.5%
3. 10%
4. 9.9%
1. 11%
2. 10.5%
3. 10%
4. 9.9%
Correct Answer – Option 3 : 10%
Given:
A sum of money, when invested at a certain rate of compound interest per year, became 1.21 times
The sum invested on maturity after two years
Formula used:
Compound interest (A) = Principal amount × [1 + (rate of interest/100)]t
Calculation:
Principal amount = p
Amount = 1.21P
Time = 2 year
Rate of interest = r
⇒ 1.21P = P [1 + (r/100)]2
⇒ 1.21 = [1 + (r/100)]2
⇒ (1.1)2 = [1 + (r/100)]2
⇒ 1.1 = (100 + r)/100
⇒ 110 = 100 + r
⇒ r = 10%
∴The rate of compound interest per annum is 10%