A man earns Rs.500 as simple interest on a certain principal amount at an annual rate of 5% over two years. Calculate the compound interest he would receive on double that principal after two years at the same interest rate.

Explanation

Let the principal be Rs. P. The simple interest earned at 5% per annum over 2 years is Rs. 500. Using the formula for simple interest: (P × 5 × 2) / 100 = 500, we find P = Rs. 5000. Now, the compound interest on twice the principal (2P = Rs. 10,000) at 5% per annum for 2 years is calculated as: CI = 10,000 × [(1 + 0.05)^2 – 1] = 10,000 × (1.1025 – 1) = 10,000 × 0.1025 = Rs. 1025. Since this value does not match any of the given options, the correct answer is 'None of the above'.