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Question

The difference between simple and compound interest compounded annually on a certain sum of money for 2 years at 4% per annum is ₹1. The value of principal amount is _____.


A

₹750

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B

₹650

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C

₹725

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D

₹625

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Solution

The correct option is D

₹625


Let the sum be x.

Amount after 2 years on x at 4% per annum when interest is compounded annually

=x(1+4100)2=x(104100)2

Compound Interest =x(104100)2x

=x[(104100)21] = x[(2625)21] = x[6766251] = x[51625]=51x625

Simple Interest =PRT100=x×4×2100=2x25

Given that difference between compound interest and simple interest is ₹1.

51x6252x25=1

51x50x625=1

x=625

the principal amount is ₹625.


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