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Question:

On a sum of money, when invested for 2 years, compound interest and simple interest are ₹300 and ₹250, respectively. For both simple and compound interests the rate of interest per annum is the same, and for compound interest, interest is compounded annually. Find the rate of interest per annum.

Explanation:

Let the rate of interest be r% p.a.

Simple interest for 2 years = Rs. 250, hence simple interest every year = Rs. 125

Compound interset for 1st year will be same as Simple intrest for 1st year = Rs. 125
Compound interset for 2nd year = 300 - 125 = Rs. 175.

We know, compound interest for each year increases by r%.

∴ r% = (175 - 125)/125 × 100% = 40% p.a.

Hence, option (c).