CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
Rs 12,000 is invested at simple interest and grows to Rs 14,160 in 3 years. What is the annual rate of interest?
The rate is 6% per annum. Total interest earned is Rs 2,160 on a principal of Rs 12,000 over 3 years, so the annual rate is 2,160 divided by 36,000, which equals 6 percent simple interest.
- A5%
- B6%Correct
- C7%
- D8%
Explanation
Interest = 14,160 − 12,000 = Rs 2,160. Rate = 2,160 / (12,000 × 3) = 0.06, i.e. 6%. Using 2,160/12,000 = 18% without dividing by 3 would wrongly give a total rate, not annual.
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