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CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities

A depositor places Rs 25,000 at simple interest and receives Rs 29,000 after 2 years. What annual rate of simple interest did the bank apply?

The rate is 8% per annum. The interest earned is Rs 4,000 (29,000 minus 25,000), and rate equals interest times 100 divided by principal times time, so 4,000 x 100 / (25,000 x 2) gives 8%.

  1. A16%
  2. B4%
  3. C8%Correct
  4. D6.4%

Explanation

Interest earned = 29,000 - 25,000 = Rs 4,000. Rate = 4,000 x 100 / (25,000 x 2) = 8%. 16% results from forgetting to divide by the time of 2 years; 4% comes from dividing by an extra factor of 2.

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