A bank pays simple interest at 6% per annum for the first 3 years, 8% per annum for the next 2 years and 10% per annum for any period beyond 5 years. What simple interest is earned on Rs 12500 invested for 7 years?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs 6750
Simple interest for each period is worked out separately on the same principal and the parts are added.
First 3 years: \(6\times3=18\%\)
Next 2 years: \(8\times2=16\%\)
Last 2 years: \(10\times2=20\%\)
Total \(=54\%\) of Rs 12500 \(=6750\)
The simple interest is Rs 6750.
Why the other options are incorrect
Option (2) Rs 4250 — Incorrect. This leaves out the last 2 years at 10%.
Option (3) Rs 7000 — Incorrect. This uses 8% for all 7 years.
Option (4) Rs 8750 — Incorrect. This uses 10% for all 7 years.