The difference between compound interest and simple interest on a certain principal for two years at 20% rate of interest is Rs. 25. What is the Principal amount ? (Answer with theory)

Answer 1

let the principal be P

simple interest:
amount = P + .2P(2) = P(1 + .4) or 1.4P

compound interest amount = P(1.2)^2

P(1.2)^2 - 1.4P = 25

solve for P