The difference between compound and simple interest on Rs. 5000 for 2 years is Rs. 72. Find the annual interest rate:___________?
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Answer: D. 12%
Explanation
The two-year difference between compound and simple interest equals principal times rate squared. Dividing the 72 rupee difference by the 5000 rupee principal gives zero point zero 144. Taking the square root and multiplying by 100 yields an annual interest rate of 12 percent. Difference formula for two years is expressed as P multiplied by r over 100 squared. Principal amount invested in the financial product is 5000 rupees. Interest rate r represents the annual percentage rate applied to the principal.
Financial institutions use interest difference formulas to verify compounding schedules. Investment advisors calculate rate sensitivities for fixed-income debt instruments. Understanding compounding formulas helps consumers evaluate high-interest loan risks. Choosing 6 percent underestimates the annual interest rate required for a 72 rupee difference. Choosing 8 percent results in an interest difference smaller than the specified 72 rupees. Choosing 10 percent produces an interest difference of 50 rupees instead of 72.
- Subject
- Mathematics
- Category
- Mathematics
- Topic
- —
- Difficulty
- medium
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