UGC NET Questions (Paper – 1)

Statements A, B, D and E are correct. A restates the basic simple interest rule. B is true because with annual compounding, one compounding per year means effective and nominal rates coincide. D is correct since more frequent compounding at the same nominal rate increases total interest. E is also true; at low rates and short durations, simple and compound interest often differ negligibly. C is false because more frequent compounding makes the effective annual rate higher, not lower, than the nominal rate. So A, B, D and E only are correct.

Option A:
Option A is incomplete because it omits E, which notes the practical observation that, for small rates and short periods, the difference between SI and CI can be very small.

Option B:
Option B is correct since it collects all the accurate statements about calculation bases, effective rates and compounding frequency, while excluding C, which reverses the relationship between nominal and effective rates.

Option C:
Option C is wrong because it includes C, which misstates the effect of multiple compounding periods, and therefore cannot represent the full set of correct statements.

Option D:
Option D is incorrect as it retains C (false) and omits B (true), so it both includes an error and misses a key correct statement.

A, B and D correctly explain fundamental ideas about simple and compound interest. Simple interest remains based on the original principal, compound interest periodically adds interest to principal to generate interest-on-interest, and increasing compounding frequency (for the same nominal rate and duration) increases the final amount. Statement C is wrong because compound interest for the same principal, rate and time is greater than or equal to simple interest, not less, and E is wrong because rate and time are central factors in every interest formula. Hence the set A, B and D only is the correct combination of true statements.

Option A:
Option A includes A and B but omits D, thereby ignoring the important effect of compounding frequency on the final amount. Although it contains two true statements, the absence of D means it does not cover all correct information listed.

Option B:
Option B selects B and D but leaves out A, failing to mention the defining feature of simple interest, namely that it is calculated only on the original principal. Without A, understanding of the contrast between simple and compound interest is incomplete.

Option C:
Option C is incorrect because it includes E, which wrongly claims that rate and time are irrelevant, and excludes B, one of the key statements about compound interest. The presence of a clearly false statement makes this option invalid.

Option D:
Option D is correct since it groups the three true statements that cover simple interest behaviour, the nature of compounding and the effect of compounding frequency, while excluding C and E, both of which misrepresent interest calculations.