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?

40 percent

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%