Calculate the amount (principal plus compound interest) on Rs 1875 for 2 years at 4% per annum, if the interest is compounded yearly.

Introduction / Context:
This question asks for the final amount after 2 years when compound interest is applied at 4% per annum on a principal of Rs 1875. The focus is on correctly applying the compound interest formula for yearly compounding and distinguishing between the amount and just the interest component.

Given Data / Assumptions:

• Principal P = Rs 1875.
• Rate of interest r = 4% per annum.
• Time t = 2 years.
• Interest is compounded yearly.
• We must compute the final amount A.

Concept / Approach:
The compound interest amount formula for annual compounding is:
A = P * (1 + r / 100)^t With P = 1875, r = 4, and t = 2, we need to compute (1.04)^2 and multiply by 1875. The result gives the amount, which already includes both principal and interest.

Step-by-Step Solution:
P = 1875, r = 4%, t = 2 years. Amount factor = (1 + 4 / 100)^2 = (1.04)^2. Compute (1.04)^2 = 1.0816. Amount A = 1875 * 1.0816. A ≈ Rs 2028. Therefore, the total amount after 2 years is Rs 2028.

Verification / Alternative Check:
We can also calculate year by year. End of year 1: amount = 1875 + 1875 * 4 / 100 = 1875 + 75 = 1950. End of year 2: interest on 1950 = 1950 * 4 / 100 = 78. Final amount = 1950 + 78 = Rs 2028. This matches the result obtained using the formula.

Why Other Options Are Wrong:
Rs. 676 and Rs. 776 are far too small and cannot represent the total amount starting from 1875. Rs. 1778 is less than the principal plus one year of simple interest and ignores the true compounding effect.

Common Pitfalls:
A common error is to compute only the interest and misread the question, which asks for the amount. Others may calculate simple interest for 2 years and add it to the principal, slightly underestimating the true amount.

Final Answer:
The amount on Rs 1875 for 2 years at 4% per annum compounded yearly is Rs. 2028.