If the compound interest on a certain principal amount for 2 years is Rs. 41 and the simple interest for the same period is Rs. 40, what is the annual interest rate?

Explanation

Given that the simple interest (SI) for 2 years is Rs. 40, the interest for 1 year is Rs. 20. When the compound interest (CI) for 2 years is Rs. 41, the difference between CI and SI is Rs. 1, which represents the interest on the interest. Using the relationship between CI and SI, the rate of interest is calculated as 5% per annum.