Ravi invested at compound interest amounts to Rs. 600 in 2nd year and 642 in 3 years. What rate of interest per annum he received?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 7%
Under compound interest the amount at the end of each year is the amount at the start of that year plus interest on the whole of it. So the amount after 3 years is the amount after 2 years multiplied by \(\left(1+\frac{r}{100}\right)\).
Interest earned in the third year: \(642-600=42\)
This is interest for one year on Rs. 600, so \(\displaystyle r=\frac{42}{600}\times100=7\%\)