Single correct option
A sum of ₹5,000 is invested at compound interest, compounded annually, and grows to ₹6,050 in 2 years. What is the annual rate of interest?
- A. 8%
- B. 10%
- C. 12%
- D. 11%
Show answer and solution
Answer: (B) 10%
Let the rate be r. Amount after 2 years = P(1 + r)² → 6050 = 5000(1 + r)².
(1 + r)² = 6050/5000 = 1.21 → 1 + r = 1.1 → r = 0.1 = 10%.
Check: 5000 × 1.1² = 5000 × 1.21 = 6050. ✓
Tip: Whenever the growth factor is a perfect square (here 1.21 = 1.1²), taking the square root directly gives the per-year multiplier.
(1 + r)² = 6050/5000 = 1.21 → 1 + r = 1.1 → r = 0.1 = 10%.
Check: 5000 × 1.1² = 5000 × 1.21 = 6050. ✓
Tip: Whenever the growth factor is a perfect square (here 1.21 = 1.1²), taking the square root directly gives the per-year multiplier.
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