CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities
Mehta Traders deposits Rs 80,000 with a bank for 3 years at 7.5% p.a. simple interest. What total interest will the bank pay at maturity?
The interest is Rs 18,000. Simple interest is principal times rate times time divided by 100, so 80,000 x 7.5 x 3 / 100 equals Rs 18,000. The interest is the same every year because it is calculated only on the original principal.
- ARs 16,000
- BRs 18,000Correct
- CRs 20,000
- DRs 6,000
Explanation
Simple interest = P x R x T / 100 = 80,000 x 7.5 x 3 / 100 = Rs 18,000. Rs 6,000 is the interest for one year only (the time factor was ignored). Rs 20,000 would arise from using 8.33%, which is not given.
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