Question

A sum of Rs 100 is compounded annually at the rate of 10% for two years. The equivalent rate of simple interest to earn the same interest is

• A. 11%
• B. 10.5%
• C. 10%
• D. 9.5%

Answer 1

The correct option is B

10.5%

Principal = Rs. 100

Rate of compound interest = 10%

Amount after $1^{st}$ year = $Rs.100+100\times \frac{10}{100}$ = Rs. 100 + 10 = Rs. 110

Now, Since it is compunded annually, amount for $2^{nd}$ year = Rs 110

Amount after $2^{nd}$ year = $Rs.110+110\times \frac{10}{100}$ = Rs. 110 + 11 = Rs. 121

Interest earned in two years = Rs. 21

Rate of Simple Interest to earn the same interest is, $R=\frac{Interest\times 100}{P\times T}=\frac{21\times 100}{100\times 2}$= 10.5%