Question
A sum of money at a certain rate of interest when
compounded annually becomes ₹625 in 4 years and ₹675 in 5 years. What is the rate of Interest per annum?Solution
Considering the 5-year investment, the sum at the end of the 4th year i.e. Rs. 625 acts as the principal amount for the 5th year. We know that one year of compound interest is equivalent to one year of simple interest. Let the rate of interest be R%. According to the question, 625 + (625 × R × 1) ÷ 100 = 675 (625 × R × 1) ÷ 100=50 R =5000/625=8%.
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