Prakash spends 60% of his income. If his income is increased by 12% and his expenditure also increases by 5% as compared to his previous expenditure. What must be the percentage increase in his savings?

Let initial income = 100. Expenditure = 60, so savings = 40. New income after 12% increase = 112. New expenditure after 5% increase = 60 × 1.05 = 63. New savings = 112 - 63 = 49. Increase in savings = 49 - 40 = 9. Percentage increase = (9/40) × 100 = 22.5%. Option A (12.5%) would be the increase if expenditure stayed at 60, but expenditure also increased.