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A sum becomes Rs. 21000 on compound interest (compounding annually) after one year. This sum becomes Rs. 22050 on compound interest (compound annually) at the same rate after two years. What is the annual rate of interest?

A sum becomes Rs. 21000 on compound interest (compounding annually) after one year. This sum becomes Rs. 22050 on compound interest (compound annually) at the same rate after two years. What is the annual rate of interest? Correct Answer 5 percent

Given:

A sum becomes Rs. 21000 on compound interest (compounding annually) after one year.

This sum becomes Rs. 22050 on compound interest (compound annually) at the same rate

after two years. 

Formula used:

Rate % = (Simple interest/Principal × Time) × 100

Calculation:

According to the question,

Increased amount in one year = Rs. 22050 - Rs. 21000 = Rs. 1050

Rate % = (1050/21000) × 100 = 5%

∴ The annual rate of interest is 5%.

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