At what rate of compound interest per annum will a sum of ₹1200 become ₹1348.32 in 2 years?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 6%
With interest compounded yearly, the amount after 2 years is \(\displaystyle P\left(1+\frac{r}{100}\right)^2\), so the ratio of the amount to the principal is a perfect square whose square root gives the rate.
Amount divided by principal: \(\displaystyle \left(1+\frac{r}{100}\right)^2=\frac{1348.32}{1200}=1.1236\)
Taking the square root: \(\displaystyle 1+\frac{r}{100}=\sqrt{1.1236}=1.06\)
So the rate of interest is \(r=6\%\) per annum