Multiple choice

On a certain sum of money the compound interest Rs. 318 is earned in 2 years. If the rate of interest is 12%, what is the principal amount?

  1. Rs. 1250

  2. Rs.1300

  3. Rs. 1200

  4. Rs. 1150
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A Correct answer
Explanation

The formula for compound interest over 2 years is CI = P * ((1 + r/100)^2 - 1). Substituting the given values, we get 318 = P * ((1.12)^2 - 1), which simplifies to 318 = P * 0.2544. Solving for P gives a principal amount of Rs. 1250.

AI explanation

Using the compound interest formula for the amount, Amount = Principal x (1 + Rate/100)^Time, we set up the equation Principal x (1.12)^2 = Principal + 318. This simplifies to Principal x 1.2544 = Principal + 318. Subtracting Principal from both sides gives 0.2544 x Principal = 318, so the principal amount is Rs. 1250.

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