An equal sum of money is invested in two schemes which offer interest at the same rate but one at simple interest and the other at compound interest (compounded annually). Simple interest and compound interest received at the end of 2 years is Rs. 1,800 and Rs. 1,980, respectively. Find the rate of interest.

Solution

ATQ, Let the sum invested in two schemes be Rs. 'P'. Let the rate of interest be 'r%', per annum. We know that, simple interest received at the end of each year of investment is equal. Simple interest received at the end of first year = Simple interest received at the end of second year = (1800/2) = Rs. 900 Also, simple interest and compound interest received at the end of first year are equal. So, simple interest received at the end of first year = Compound interest received at the end of first year = Rs. 900 Compound interest received in the second year = 1980 - 900 = Rs. 1080 So, we can say that a sum of Rs. 900 amounts to Rs. 1080 at the end of a year at the given rate of interest. Compound interest received for 1 year = Simple interest received for 1 year Simple interest = Principal X (Rate/100) X Time 900 X (r/100) X 1 = 1080 - 900 So, r = 180 X (5/18) = 10 Therefore, rate of interest = r = 20%