Multiple choice

The principal amount which yields a compound interest of Rs. 208 in the second year at 4% is

  1. Rs. 6000

  2. Rs. 6500

  3. Rs. 5000

  4. Rs. 10,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

CI in 2nd year = P * (1+r)^2 - P * (1+r) = P * r * (1+r). 208 = P * 0.04 * 1.04. P = 208 / 0.0416 = 5000.

AI explanation

The compound interest earned in the second year is calculated on the amount accumulated at the end of the first year, which is P(1 + R/100). The interest for the second year is P x R/100 x (1 + R/100). For a rate of 4%, this formula becomes P x 4/100 x 1.04 = 208. Simplifying this gives 0.0416P = 208, and dividing 208 by 0.0416 gives a principal of Rs. 5000.

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