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A man invested ₹P at the rate of 5% p.a. for 2 years, and the difference between compound interest and simple interest is ₹20. Find P.

1. 8000
2. 1200
3. 3600
4. 4800

Correct answer: 8000

Solution

For 2 years, the difference between compound interest and simple interest is P(r/100)^2. Here r = 5 and the difference is 20, so 20 = P(5/100)^2 = P/400. Hence P = 8000.

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