Suppose a bank gives an interest of 10% per annum compounded annually

Suppose a bank gives an interest of 10% per annum compounded annually for a fixed deposit for a period of two years. What should be the simple interest rate per annum if the maturity amount after two years is to remain the same?

1. 10%
2. 10.5%
3. 11%
4. 12%

• Answer: The correct option is B
• Explanation:

  Let the principal amount be ₹100

  For annual compound interest at 10%,

  First year interest = ₹10 (10% of ₹100)

  Second year interest = ₹11 (10% of ₹110)

  Total interest in two years = ₹21

  Simple interest should be ₹10.5 to get the same interest in two years.