Allen invested “x” dollars and earns an interest of Rs.1200 for the second year where interest compounded annually and Rs.1500 for the third year. What is the rate of interest for his investments?

1. 5%
2. 8%
3. 10%
4. 20%
5. 25%

Answer: E 

Explanation:

Given that, “x” dollars are invested under compound interest.

Difference between the interest in the II and II year = 1500 – 1200 = 300.

So, Rate of interest = (Difference/Previous year amount) * 100 = (300/1200) * 100 = 25%. 

(Because the difference in Interest amount is always the rate of interest on the previous term interest amount).

Hence the answer is E.

X