Read the following passage and answer the question.

A, B and C are partners in a partnership firm sharing profits and loss in ratio of 2:2:1. Their fixed capitals are ₹10,00,000, ₹8,00,000 and ₹7,00,000 respectively. They withdrew some amount from the firm for their personal use. Partnership deed provide interest on drawings @10% p.a. but no interest on capital. Market rate of interest on capital in similar firm is 5% p.a. C also gives a loan of ₹1,00,000 to the firm without any agreement of interest whereas market rate of interest on loan is 12% p.a.

If all partners agree to provide interest on capital from immediate effect at the rate prevailing in market, then what will be the rate of interest on capital?

5% p.a.

The correct answer is option 2- 5% p.a.

As given in the question, market rate of interest on capital in similar firm is 5% p.a. So, If all partners agree to provide interest on capital from immediate effect at the rate prevailing in market, then 5% p.a. is the rate of interest on capital.