The difference between annual compound interest and simple interest over 2 years at 20% per annum is Rs. 144. Find the principal.
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Answer: C. Rs.3600
Explanation
The difference between compound and simple interest over two years is linked to the principal amount. Squaring the decimal interest rate and multiplying by the principal yields the known interest difference. Dividing the interest difference by the squared rate factor determines the principal as thirty six hundred. Compound interest accrues on accumulated interest, whereas simple interest applies only to the principal. The two year interest variance formula is derived from binomial expansion of compounding periods. Isolating the principal variable allows solving financial equations when interest discrepancies are known.
Banks use interest variance formulas to audit accounts and detect discrepancies in loan computations. Borrowers benefit from understanding how compounding frequency impacts total debt obligations over time. Financial mathematics provides rigorous methods for determining unknown capital investments from returns. Option a underestimates the principal amount by six hundred currency units. Option b proposes thirty three hundred which fails to satisfy the interest difference equation. Option d overestimates the principal requirement by three hundred currency units.
- Subject
- Mathematics
- Category
- Mathematics
- Topic
- —
- Difficulty
- medium
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