Bunuel wrote:
The simple interest on a certain sum of money for 3 yrs is $225 and the compound interest on the same sum at the same rate for 2yrs is $153. What is the principal invested?
A. $1500
B. $1875
C. $2250
D. $2500
E. $2750
Simple interest for 3 yrs is $225
i.e. Simple Interest for 1 year = 225/3 = $75
(Simple interest on a fixed sum remains same every year as the principle sum remains static)i.e. Compound interest for first year = 75 (For first compounding Simple interest and compound interests are same... they start differing from second compounding)
Compound interest for Second year = 153 - 75 = 78
i.e. Coumpound interest for second year is 78-75 = $3 more which is interest charged on interest earned in previous compoundingi.e. Interest earned on $75 = $3
i.e. interest rate = (3/75)*100 = 4%
i.e. interest at Principle P for 1 year @4% = $75i.e. (4/100)*P = 75
i.e. P = $1875
Answer: Option B
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