The C.I. on ₹ 16000 in 2 years at the rate of 20% per annum is :

1. ₹ 19360

2. ₹ 7040

3. ₹ 23040

4. ₹ 22400

Given,

P = ₹ 16000

n = 2 years

r = 20%

By formula,

A = $P\Big(1 + \dfrac{r}{100}\Big)^n$

C.I. = A - P

$C.I. = P\Big(1 + \dfrac{r}{100}\Big)^n - P \\[1em] = 16000 \times \Big(1 + \dfrac{20}{100}\Big)^2 - 16000 \\[1em] = 16000 \times \Big(\dfrac{120}{100}\Big)^2 - 16000 \\[1em] = 16000 \times \Big(\dfrac{6}{5}\Big)^2 - 16000 \\[1em] = 16000 \times \dfrac{36}{25} - 16000 \\[1em] = 23040 - 16000 \\[1em] = ₹ 7040.$

Hence, Option 2 is the correct option.