A man got 10% of his investment as profit. If he invested Rs. 5000, and the profit was reinvested, what will be the total value after the second year with the same profit rate?

Correct — B. Reinvesting the profit means year 2 earns 10% on the grown value, not on the original ₹5,000.

Year 1 profit: 10% of 5,000 = 500
Value after year 1: 5,000 + 500 = 5,500
Year 2 profit: 10% of 5,500 = 550
Value after year 2: 5,500 + 550 = ₹6,050 → option (b)

Why the others are wrong

• (a)
  Rs. 6000 — ₹6,000 is simple growth: ₹500 profit in each year. Once the first ₹500 is reinvested, year 2 earns 10% of ₹5,500, which is ₹550.
• (c)
  Rs. 6100 — ₹6,100 implies ₹1,100 of total profit. The two years actually earn ₹500 and ₹550, which is ₹1,050, so this overshoots by ₹50.
• (d)
  Rs. 6150 — ₹6,150 implies ₹1,150 of total profit, ₹100 more than the ₹500 + ₹550 that two years at 10% produce.

Reinvesting the profit is compound growth: each year's 10% is taken on the previous year's value. So the value after n years is P × (1 + r⁄100)ⁿ, here 5,000 × 1.1² = 5,000 × 1.21.

The extra ₹50 over simple growth is the 10% earned in year 2 on year 1's ₹500 profit.

Key facts

• Value with annual compounding = P × (1 + r⁄100)ⁿ.
• 1.1² = 1.21, so two years at 10% multiply a sum by 1.21.
• Two-year CI − SI = P × (r⁄100)², here 5,000 × 0.01 = ₹50.

Common traps

• Adding 10% + 10% = 20% of ₹5,000. That gives ₹6,000 and ignores the reinvested profit.
• Answering with the total profit, ₹1,050, when the question asks for the total value.

No directly related past PYQ was found.