Shortcut Trick The Effective Rate of Compound Interest for 2 years at 12% = 12 + 12 + (12 × 12)/100 = 25.44%. Given Compound Interest = ₹ 1,908. 25.44% of Principal = 1,908 Principal = 1,908 ÷ 0.2544 = ₹ 7,500. ∴ The correct answer is Rs. 7,500. Alternate Method Given: Rate (R) = 12% per annum Time (n) = 2 years Compound Interest (CI) = Rs. 1,908 Formula Used: CI = P[(1 + R/100)^(n) − 1] Calculations: ⇒ 1,908 = P[(1 + 12/100)^(2) − 1] ⇒ 1,908 = P[(1 + 0.12)^(2) − 1] ⇒ 1,908 = P[(1.12)^(2) − 1] ⇒ 1,908 = P[1.2544 − 1] ⇒ 1,908 = P × 0.2544 ⇒ P = 1,908 ÷ 0.2544 ⇒ P = 1,9080000 ÷ 2544 ⇒ P = 7,500 ∴ The correct answer is Rs. 7,500. Related Concepts: Effective Interest Rate For two successive years with rate r%, the effective Compound Interest rate is calculated as r + r + (r^(2)/100)%. Amount Formula The total Amount (A) after compounding annually is A = P(1 + R/100)^(n), where P is Principal and n is Time. Difference between CI and SI The difference between Compound Interest and Simple Interest for 2 years is given by the formula P(R/100)^(2).