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The difference between simple and compound interests compounded annually on a certain sum of money for 2 years at 4% per annum is Re. 1. The sum (in Rs. ) is_________?

Correct answer: A. 625

  • A. 625
  • B. 630
  • C. 640
  • D. 650

Explanation

For 2 years at 4% per annum, the difference is P x (4/100)^2 = P x 0.0016. Therefore, Rs.1 = P x 0.0016, giving P = Rs.1 ÷ 0.0016 = Rs.625. The likely wrong choice is Rs.640, which comes from using 4% of the principal rather than the squared rate.

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Percentages express a quantity as parts per hundred and support calculations involving increases, decreases, discounts, commissions, taxes, and successive changes. Questions require distinguishing percentage change from percentage points and identifying the original value when a final value and its percentage change are given.

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