The interest on Rs. 750 over 2 years equals the true discount on Rs. 960 due in 2 years. Assuming equal interest rates, find the rate:
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Answer: B. 14%
Explanation
Simple interest and true discount formulas are equated based on the problem statement conditions. Setting up the algebraic relationship for both monetary values over two years isolates the rate. Solving the resulting financial equation yields an annual interest rate of fourteen percent. True discount represents the interest on the present worth of a sum due at a future date. Simple interest is calculated directly on the principal amount over a specified time period. Equating financial discounting formulas allows solving for unknown interest rates and periods.
Commercial banking and debt valuation rely heavily on true discount and interest equivalencies. Financial analysts use discount formulas to determine the present value of future cash flows. Advanced arithmetic problems test the understanding of monetary time value principles. Option a suggests a twelve percent rate which fails to balance the simple interest and discount equation. Option c proposes a fifteen percent rate that is too high for the given financial values. Option d overestimates the annual interest rate required to satisfy the discount equivalence.
- Subject
- Mathematics
- Category
- Mathematics
- Topic
- —
- Difficulty
- medium
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