On a certain sum, the simple interest for 2 years is ₹3,600 and the compound interest for 2 years at the same rate is ₹3,744. What is the rate of interest?

💡 Solution & Explanation

Simple interest for one year = ₹3,600 ÷ 2 = ₹1,800. Compound interest is higher only because, in year 2, interest is also earned on year 1's interest: ₹3,744 − ₹3,600 = ₹144. That extra is the year-2 interest on ₹1,800, so the rate = 144 ÷ 1,800 × 100 = 8%. The principal is then ₹1,800 × 100 ÷ 8 = ₹22,500.