​The price of a TV set increases by 20% in the first year and again by 5% in the next year The net effect on the price of the TV set after two years compared to its initial price is a:

Correct option is A

Given:

First year price increase = 20%

Second year price increase = 5% 

Solution: 

​The price increases by 20% in the first year so 

Price after year 1 = 100 × 1.20 = 120 

So, the price at the end of the first year is 120

The price increases by 5% in the second year so

Price after year 2 = 120 × 1.05 = 126 

So, the price at the end of the second year is 126

​$$\text{Net effect} = \frac{126 - 100}{100} \times 100 = \frac{26}{100} \times 100 = 26\%$$ 

Thus the net effect on the price of the TV set after two years is a 26% increase compared to the initial price. 

Alternate solution: 

If two profit is x% and y% then combined profit is given by formula 

Combined profit  = $$x+y+\frac{xy}{100}$$ 

We given x = 20% and y= 5% then 

Combined increase = $$20 + 5 + \frac{(20×5)}{100} = 20+5+1= 26$$%