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A person wants to invest a fixed sum of money; he has two options either to invest it for 2 years wherein the ratio of principal amount and simple interest is 8: 1 or to invest for 4 years wherein the ratio of principal amount and simple interest is 5: 1. Which one should he select and at what percentage for more profit?

A person wants to invest a fixed sum of money; he has two options either to invest it for 2 years wherein the ratio of principal amount and simple interest is 8: 1 or to invest for 4 years wherein the ratio of principal amount and simple interest is 5: 1. Which one should he select and at what percentage for more profit? Correct Answer Option 2, 5%

Given:

Option 1: P : I = 8 : 1

N = 2 years

Option 2: P : I = 5 : 1

N = 4 years

Formula used:

I = PRN / 100

Where P = Principal amount, R = Rate of interest in %, N = Number of years, I = Interest earned

A = P + I    

Where A = Amount received

Calculation:

Option 1:

P / I = 8/ 1

⇒ P/ (PRN / 100) = 8 / 1

⇒ 100 / (R × 2) = 8 / 1

⇒ 100 / (8 × 2) = R

⇒ R = 6.25%

Option 2:

P / I = 5/ 1

⇒ P/ (PRN / 100) = 5 / 1

⇒ 100 / (R × 4) = 5 / 1

⇒ 100 / (5 × 4) = R

⇒ R = 5%

∴ He should invest at 5% for four years.

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