A sum of money amounts to ₹540 in 2 years and to ₹648 in 3 years at compound interest. What is the rate of interest per year?

💡 Solution & Explanation

Between year 2 and year 3, the only change is one year's interest on ₹540: ₹648 − ₹540 = ₹108. So the rate = 108 ÷ 540 × 100 = 20%. Dividing by the larger amount instead gives 16.67%, which is wrong because interest is on the amount at the start of the year.