Banking Exam Question - In the interest rate of 10% annual interest rate for 2 years, the difference between compound interest and simple interest is Rs. 120, then what is the Principal?

Introduction - Compound Interest

Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Solve in English Medium

In the interest rate of 10% annual interest rate for 2 years, the difference between compound interest and simple interest is Rs. 120, then what is the Principal?

Time (T) = 2 years, Annual Interest Rate (R) = 10%

Principal (P) Rs. x, Compound interest (C.I) =?

A = P + C.I

Simple Interest (I) =? Mixed (A) =?
Here,

or, x + C.I = x (110/100) 2 = x + C.I = 1.21x

or, P + C.I = P (1 + r / 100) T x + C.I = x (1 + 10/100) 2 C.I = 1.21x-x

Simple interest (I) = PTR / 100 = x * 2 * 10/100 = Rs. x / 5

= x (1.21-1) = Rs. 0.21x
Again, As stated in the question, C.I-I = 120

Therefore Answer Principal (P) = Rs. 12000

or, 0.21x-x / 5 = 120 or, 1.05x-x = 600

or, 0.05x = 600