Question

A man opened a recurring deposit account in a branch of PNB. The man deposits certain amount of money per month such that after 2 years, the interest accumulated is equal to his monthly deposits. Find the rate of interest per annum that the bank was paying for the recurring deposit account.

Answer 1

Given:

Let monthly deposit = P.

Time = 2 years = 24 months so n = 24.

Interest accumulated in 2 years = Monthly deposit = P.

Step-wise calculation:

1. For a recurring deposit, interest

`I = P xx [(n(n + 1))/(2 xx 12)] xx (R/100)`

2. Substitute I = P and n = 24:

`P = P xx [(24 xx 25)/24] xx (R/100)`

3. Cancel P on both sides:

`1 = ((24 xx 25)/24) xx (R/100)`

= `25 xx (R/100)`

4. Solve for R:

`R/100 = 1/25`

⇒ `R = 100/25`

⇒ R = 4

The rate of interest = 4% per annum.