If the difference between compound interest and simple interest on a certain principal at 5% per annum for 2 years is Rs. 1.50, what is the principal amount?

Explanation

Let the principal be Rs. 100. The simple interest (S.I.) for 2 years at 5% per annum is Rs. 10. The compound interest (C.I.) for the same period is Rs. [100 × (1 + 5/100)^2 - 100] = Rs. 10.25. The difference between C.I. and S.I. is Rs. 0.25. Given the actual difference is Rs. 1.50, we set up the ratio 0.25 : 1.50 = 100 : x, which gives x = (1.50 × 100) / 0.25 = Rs. 600. Therefore, the principal amount is Rs. 600.