Simple Interest – Rate-gap from interest difference: The difference between the simple interest earned on ₹ 1,000 in 2 years from two banks is ₹ 20. What is the difference between their annual rates of interest?

Introduction / Context:
For the same principal and time, the difference in simple interest equals principal * time * difference in rates. This lets us directly compute the rate gap.

Given Data / Assumptions:

• P = ₹ 1000
• t = 2 years
• Difference in SI = ₹ 20

Concept / Approach:
Let Δr be the difference in rates (per year as a decimal). Then ΔI = P * t * Δr.

Step-by-Step Solution:
20 = 1000 * 2 * ΔrΔr = 20 / 2000 = 0.01 = 1%

Verification / Alternative check:
If one bank is 6% and the other 5%, on ₹ 1000 for 2 years the difference is ₹ 20 (matches).

Why Other Options Are Wrong:
2%, 1.5%, 2.5% lead to ₹ 40, ₹ 30, and ₹ 50 differences respectively for the same data.

Common Pitfalls:
Forgetting that time is 2 years or mixing percent with decimal.

Final Answer:
1%