The amount received on a certain sum at the same annual rate of interest after 3 years and 5 years on compound interest (compounding annually) is Rs. 5324 and Rs. 6442.04 respectively. What is that sum?
Show answer & explanation
Correct answer: C
Explanation
Given:
Amount after 3 years = 5324
Amount after 5 years = 6442.04
By the formula:
A = P(1 + r)²
Ratio of amount after 5 years and 3 years
(1 + r)² = 6442.04 ÷ 5324
(1 + r)² = 1.21
1 + r = 1.1
r = 0.1 = 10%
5324 = P(1.1)³
5324 = P × 1.331
P = 5324 ÷ 1.331 = 4000
Principal = Rs. 4000