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Mathematics

If the amounts of two consecutive years on a sum of money are in the ratio 20 : 21, find the rate of interest.

Compound Interest

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Answer

Given: The amounts of two consecutive years on a sum of money = 20 : 21.

Let the amount at the end of first year be 20x and the amount at the end of second year be 21x.

Compound interest for second year:

P = 20x, R = r %, T = 1 years, A = 21x

A = P (1+R100)n\Big(1 + \dfrac{R}{100}\Big)^n

⇒ 21x = 20x (1+r100)1\Big(1 + \dfrac{r}{100}\Big)^1

1+r100=21201 + \dfrac{r}{100} = \dfrac{21}{20}

r100=21201\dfrac{r}{100} = \dfrac{21}{20} - 1

r100=212020\dfrac{r}{100} = \dfrac{21 - 20}{20}

r100=120\dfrac{r}{100} = \dfrac{1}{20}

⇒ r = 10020\dfrac{100}{20} = 5 %

Hence, the rate of interest = 5%.

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