The management committee of Nepal Bank Limited in its regular meeting has decided to change its annual policy slightly. According to the decision, the rate of interest for fixed deposit compounded semi annually is given below: Up to 6 months: 6.75%, minimum deposit Rs. 50,000. From 6 months to 1 year: 7.25%, minimum deposit Rs. 50,000. From 1 year to 6 years: 7.5%, minimum deposit Rs. 75,000. Sujit Thakur borrowed Rs. 2,00,000 from a cooperative on condition of paying it back in 2 years at the rate of simple interest of 5%. Immediately after borrowing, he deposited the same sum in a fixed deposit account of Nepal Bank Limited for the same duration. Which rate of interest should Sujit Thakur deposit the money in the fixed deposit?

Question

Accepted Answer

Since the deposit period is 2 years (falling in the "1 year to 6 years" bracket), the applicable rate is . Flag: the deposit table is described as compounded semi-annually, so the mathematically consistent computation for a 2-year term at 7.5% p.a. would use 4 half-year periods at 3.75% each, giving . However, the textbook's own printed answer (Rs. ) is instead reproduced exactly by simple annual compounding, — the figures below follow the book's own answer (annual compounding) so that parts (c) and (d) stay consistent with it, but this is an inconsistency in the source between the stated semi-annual compounding and the number actually used.