The compound interest on a certain sum at 20% per annum, compounded annually, is Rs 1440 in the 2nd year. Find the sum.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs 6000
The interest of the 2nd year is 20% of the amount at the end of year 1, and that amount is the sum multiplied by 1.2 for the first year.
Amount at the end of year 1 \(=1440\div0.2=7200\)
Sum \(=7200\div1.2=6000\)
The sum is Rs 6000.
Why the other options are incorrect
Option (2) Rs 5000 — Incorrect. On Rs 5000 the interest of the 2nd year would be Rs 1200.
Option (3) Rs 7500 — Incorrect. On Rs 7500 the interest of the 2nd year would be Rs 1800.
Option (4) Rs 7200 — Incorrect. On Rs 7200 the interest of the 2nd year would be Rs 1728.