On a certain sum, the simple interest for 2 years is ₹950 and the compound interest for 2 years at the same rate is ₹969. What is the rate of interest?

💡 Solution & Explanation

Simple interest for one year = ₹950 ÷ 2 = ₹475. Compound interest is higher only because, in year 2, interest is also earned on year 1's interest: ₹969 − ₹950 = ₹19. That extra is the year-2 interest on ₹475, so the rate = 19 ÷ 475 × 100 = 4%. The principal is then ₹475 × 100 ÷ 4 = ₹11,875.