Question : A sum of money amounts to INR 1,200 in 2 years and becomes INR 1,260 in 3 years at compound interest when interest is compounded annually. What is the rate of compound interest per annum?
Option 1: 5%
Option 2: 3%
Option 3: 4%
Option 4: 6%
Correct Answer: 5%
Solution :
Let the rate of interest per annum as \( R \)
Given:
After 2 years, the amount is INR 1,200
After 3 years, the amount is INR 1,260
So, interest during the third year = interest on the amount of the second year
⇒ 1260 - 1260 = $\frac{1200 × R}{100}$
⇒ 60 = 12$R$
⇒ $R$ = 5%
So, the rate of compound interest per annum is \( 5\% \).
Hence, the correct answer is 5%.
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