Test Index

Time Value of Money

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Question : 1 of 99

Marks: +1, -0

The simple interest on a sum of money is

\; \frac{1}{16}

th of the principal and the number of years is equal to the rate percent per annum. The number of years is

2 yrs
2.5 yrs.
4 yrs
5 yrs.

Solution:

Concept:

Simple interest formula:

SI = \frac{P \times R \times T}{100}

, where

R

is rate % per annum and

T

is time in years.

Explanation:

Let principal =

P

, time =

T

, rate =

R

% per annum.

Given:

R = T

and

SI = \frac{1}{16}P

.

Substitute into formula:

\frac{1}{16}P = \frac{P \times T \times T}{100} = \frac{P T^2}{100}

.

Cancel

P

(

P \neq 0

):

\frac{1}{16} = \frac{T^2}{100}

.

Cross-multiply:

T^2 = \frac{100}{16} = \frac{25}{4}

.

Take square root:

T = \frac{5}{2} = 2.5

years.

Answer:

The number of years is 2.5 yrs.

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