Two banks pay simple interest at different rates. On a deposit of Rs 1600 for 5 years, the interest from one bank is Rs 120 more than the interest from the other. What is the difference between their rates of interest?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 1.5%
The sum and the time are the same for both banks, so the difference in interest comes only from the difference in rates.
Let the rates differ by \(d\%\)
\(\displaystyle\frac{1600\times d\times5}{100}=120\)
\(\displaystyle d=\frac{120\times100}{1600\times5}=\frac{12000}{8000}=1.5\)
The rates differ by 1.5%.
Why the other options are incorrect
Option (1) 3% — Incorrect. A rate difference of 3% gives an interest difference of \(\displaystyle\frac{1600\times3\times5}{100}=240\), not Rs 120.
Option (3) 7.5% — Incorrect. A rate difference of 7.5% gives an interest difference of \(\displaystyle\frac{1600\times7.5\times5}{100}=600\), not Rs 120.
Option (4) 0.75% — Incorrect. A rate difference of 0.75% gives an interest difference of \(\displaystyle\frac{1600\times0.75\times5}{100}=60\), not Rs 120.