Calculate the final amount on a principal of Rs. 1,875 invested for 2 years at 4% per annum, if the interest is compounded yearly.

Introduction:
This question asks for the maturity amount on a small principal when compound interest is applied annually for 2 years. It is a straightforward application of the compound interest formula with a modest rate and time period.

Given Data / Assumptions:
Principal P = Rs. 1,875. Annual rate r = 4%. Time t = 2 years. Compounding is annual.

Concept / Approach:
The formula for the amount under compound interest is: A = P * (1 + r/100)^t. We will substitute P, r and t, compute the multiplier (1.04)^2, and then multiply by the principal to get the amount. The interest itself could be obtained as A − P, but the question specifically asks for the amount.

Step-by-Step Solution:
Step 1: Compute the yearly multiplier. 1 + r/100 = 1 + 4/100 = 1.04. Step 2: Square the multiplier for 2 years. (1.04)^2 = 1.0816. Step 3: Compute the final amount. A = 1875 * 1.0816. 1875 * 1 = 1,875. 1875 * 0.0816 ≈ 153. Therefore A ≈ 1,875 + 153 = Rs. 2,028.

Verification / Alternative check:
We can verify year by year. After 1 year, amount = 1875 * 1.04 = 194,? actually 1875 * 4% = 75, so amount = 1,950. After the second year, interest = 4% of 1,950 which is 78. So final amount = 1,950 + 78 = Rs. 2,028. This matches the answer obtained via the formula.

Why Other Options Are Wrong:
Rs. 676 and Rs. 776 are far below the principal and therefore impossible as maturity amounts. Rs. 1,778 and Rs. 1,925 are too low and correspond to miscalculations of one year of interest or to ignoring compounding. Only Rs. 2,028 reflects two years of 4% compound interest.

Common Pitfalls:
A frequent mistake is to compute simple interest only for 2 years and then forget to add interest on the increased amount in the second year. Another is to miscalculate 4% of 1,950. Writing every step neatly helps to avoid arithmetic slips.

Final Answer:
The final amount after 2 years will be Rs. 2,028.