Two-year effective rate — Aptitude Question
Two-year effective rate: What single percentage is equivalent to compound interest at 20% per annum for 2 years? Answer and worked solution on CodeKairo.
- Topic: Simple & Compound Interest
- Section: Quantitative Aptitude
- Difficulty: Medium
- Time target: 50 seconds
Question
What single percentage is equivalent to compound interest at 20% per annum for 2 years?
Options
- 40%
- 42%
- 44%
- 48%
Show the answer and the worked solution
Correct answer: C. 44%
Worked solution
- Growth = 1.2² = 1.44.
- That is a 44% increase.
Answer: 44%.
The idea
Two years at r% compound equals 2r + r²/100 percent overall — here 40 + 4 = 44. Simple interest would give exactly 40%.
Shortcut. Grow a base of 100 twice: 100 → 120 → 144, so the overall rise is 44%.
Common trap. 40% — adding 20% + 20% as if it were simple interest; the second year's 20% also applies to the first year's 20, adding 4 more.
All Simple & Compound Interest questions · placement mock tests