A sum is invested at 10% per annum with simple interest. What will be the time taken to increase its value by 25%?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 2.5 years
Under simple interest the interest is the same every year, here 10% of the sum. The value goes up by 25% when the total interest reaches 25% of the sum, so the time is the total percentage needed divided by the yearly rate.
Interest earned each year = 10% of the sum, the same every year
Years needed for the interest to reach 25% of the sum: time \(\displaystyle=\frac{25\%}{10\%\text{ a year}}=2.5\) years