Test Index

Time Value of Money

Question : 79 of 99

Marks: +1, -0

Solution:

Concept:

Simple interest grows linearly; the difference in amounts after successive years is the annual interest.

Explanation:

Let principal =

P

and rate =

R\%

per annum.

Amount after 3 years:

P + \frac{P \times R \times 3}{100} = 2688

Amount after 4 years:

P + \frac{P \times R \times 4}{100} = 2784

Subtract: Interest for 1 year =

2784 - 2688 = 96

\frac{P \times R}{100} = 96

which gives

P \times R = 9600

From the 3-year amount:

P + 3 \times 96 = 2688

P = 2688 - 288 = 2400

Substitute:

2400 \times R = 9600

gives

R = \frac{9600}{2400} = 4

Answer:

Rate is

4\%

per annum, which corresponds to option D.

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