A sum becomes 1.96 times of itself in 2 years when invested at compound interest (compounding annually). What is the annual rate of interest?
Answer & explanation
Correct answer: option 3
Amount = Principal × ( 1 + \(\frac{rate }{100}\) )t
Let principal = P and Amount = 1.96P
1.96P = P × ( 1 + \(\frac{rate }{100}\) )2
\(\frac{196 }{100}\) = ( 1 + \(\frac{rate }{100}\) )2
\(\frac{14 }{10}\) = ( 1 + \(\frac{rate }{100}\) )
\(\frac{rate }{100}\) = \(\frac{4 }{10}\)
Rate = 40%