What is the principal amount (in Rs.) if the difference between the simple interest and compound interest (compounded annually) on it for 2 years at a rate of 4% per annum is Rs. 1?

Explanation

Let the principal be Rs. x. The compound amount after 2 years at 4% per annum is x(1 + 4/100)^2 = (676/625) x. Compound interest = (676/625)x - x = (51/625)x. Simple interest for 2 years = (x * 4 * 2)/100 = (2x)/25. The difference between compound interest and simple interest is given as 1, so: (51/625)x - (2x/25) = 1. Solving this equation yields x = 625.