CS Executive · Corporate Accounting and Financial Management · Time Value of Money
A sum of money invested at compound interest becomes ₹6,600 after 1 year and ₹7,260 after 2 years, interest compounded annually. What is the original principal?
The principal is ₹6,000. The growth from year 1 to year 2 is 660 on 6,600, giving a 10% rate. Discounting the first-year amount, 6,600 ÷ 1.10 = ₹6,000, which also compounds to ₹7,260 in two years.
- A₹5,500
- B₹6,000Correct
- C₹5,000
- D₹6,200
Explanation
Rate = (7,260 − 6,600)/6,600 = 660/6,600 = 10%. Principal = 6,600 / 1.10 = ₹6,000. Check: 6,000 × 1.21 = 7,260. ₹5,500 wrongly divides 6,600 by 1.2.
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