Question : What is the present value of the sum if the interest compounded at the rate of 18% per annum for two years is 981?
Option 1: INR 2,800
Option 2: INR 2,500
Option 3: INR 3,600
Option 4: INR 2,400
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Correct Answer: INR 2,500
Solution :
Given: Compound interest = 981
$r=18$%
$t=2$ years
Solve by using the formula: Compound interest = $P[(1+\frac{r}{100})^{t}–1]$ to get the desired value where $P$ is principal, $r$ is the rate of interest and $t$ is the time in years.
Putting the value in the above formula, we have,
⇒ $981=P[(1+\frac{18}{100})^{2}-1]$
⇒ $981=P[(\frac{59}{50})^{2}-1]$
⇒ $981=P[\frac{3481–2500}{2500}]$
⇒ $981=P[\frac{981}{2500}]$
⇒ $P=2500$
Hence, the correct answer is INR 2,500.
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