Multiple choice

If the difference between simple interest and compound interest calculated at the rate of 5% for two years is Rs. 12.50, what is the principal amount invested?

  1. Rs. 5000

  2. Rs. 7000

  3. Rs. 1000

  4. Rs. 3000

  5. Rs. 2500
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A Correct answer
Explanation

Difference between CI and SI for 2 years = P * (r/100)^2. 12.50 = P * (5/100)^2 = P * (1/20)^2 = P / 400. P = 12.50 * 400 = 5000.

AI explanation

The formula for the difference between compound interest and simple interest for two years at rate R is P times (R divided by 100) squared. Substituting the given difference of Rs. 12.50 and the rate of 5%, we get 12.50 equals P times 0.05 squared. This simplifies to 12.50 equals P times 0.0025, so P equals 12.50 divided by 0.0025, which results in a principal of Rs. 5000.

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