An investor is faced with a problem about where to invest his savings of 20 lakhs. Scheme A gives 10% interest compounded annually for 2 years and a simple interest of 20% for the next 3 years. If the amount has increased by less than 60%, an additional 20% is also added to it. Scheme B gives a simple interest of 10% for 2 years and a compound interest of 20% for 3 years compounded annually. If the amount has increased by less than 50%, an additional 15% is added to it. If the investor goes with the right choice, how much does he earn over his initial investment?

An investor is faced with a problem about where to invest his savings of 20 lakhs. Scheme A gives 10% interest compounded annually for 2 years and a simple interest of 20% for the next 3 years. If the amount has increased by less than 60%, an additional 20% is also added to it. Scheme B gives a simple interest of 10% for 2 years and a compound interest of 20% for 3 years compounded annually. If the amount has increased by less than 50%, an additional 15% is added to it. If the investor goes with the right choice, how much does he earn over his initial investment? Correct Answer Rs.21,47,200

Calculation:

Let the amount the investor wants to invest be x.

Scheme A:

Amount of investment after 2 years, a₂ = x × (1.1)² = 1.21x

Amount of investment after 5 years,

⇒ a₅ = 1.21x × (1 + (0.2 × 3)) = 1.936x

Since the increase is more than 60%, an additional 10% won’t be added to it.

Scheme B:

Amount of investment after 2 years, b₂ = x × (1 + (0.1 × 2)) = 1.2x

Amount of investment after 5 years,

⇒ b₅ = 1.2x × (1.2)³ = 2.0736x

Since the increase is more than 50%, an additional 15% won’t be added to it.

After looking at the interest earned, we can say that the investor should choose scheme B.

Amount earned by investor = 20⁶ × (2.0736 – 1) = 21,47,200

∴ The amount the investor wants to invest is Rs.21,47,200.