Question

The interest rate in a bank increased by one percentage point, which translated into a 20% increase in the interest that a person received. What was the original rate of interest in that bank?

• A. 4%
• B. 5%
• C. 6%
• D. 8%

Answer 1

The correct option is B 5%

Let the original rate of intrest be R% and principal = P,
then
SI =
$\frac{P\times R\times 1}{100}$

Also,

SI + 20% of SI =
$\frac{P\times (R+1)\times 100}{100}$

$Rightarrow$ 20% of SI =
$\frac{P\times 1\times 1}{100}$

$Rightarrow$ 100% of SI =
$5\times \frac{P\times 1\times 1}{100}$

$\Rightarrow$ SI =
$\frac{P\times 5\times 1}{100}$

Hence, R = 5%
Hence, option (B) is the correct answer.