Question

The difference between the compound interest and simple interest for a certain amount for 2 years at 4% rate is 1.6. What is the amount?

• A. 1000
• B. 500
• C. 300
• D. 800

Answer 1

Answer:

A. 1000

The principal amount is 1,000.

For a 2-year period, the difference between compound interest (CI) and simple interest (SI) is calculated using the formula:
$\text{Difference (D)} = P \times \left(\frac{R}{100}\right)^2$

Where:

• D = 1.6

• R = 4%

• P = Principal amount

Substitute the values into the formula:
$1.6 = P \times \left(\frac{4}{100}\right)^2$
$1.6 = P \times \left(\frac{1}{25}\right)^2$
$1.6 = P \times \frac{1}{625}$
$P = 1.6 \times 625$
$P = 1,000$