A sum of money is invested for 2 years at a certain rate of interest. In the first year it earns an interest of Rs. 400. In the second year it earns an interest of Rs. 420. Find the sum of money.
Correct: C
Let the principal be P and the rate of interest be r%. Then we have P*r/100 = 400 (for the first year) and P*r/100 * (1 + r/100) = 420 (for the second year). Divide the second equation by the first to get 1 + r/100 = 420/400 = 21/20, so r/100 = 1/20, and r = 5. Then from the first equation, we get P = 400 * 100/5 = 8000.