Calculation of Principal Amount

Given, the amount lent at compound interest is Rs. 1323 for 2 years at 5% C.I.

Let the principal amount be P.

Using the formula for compound interest, we can write:

Amount = P(1 + R/100)^n

Where, R is the rate of interest and n is the time period.

Substituting the given values, we get:

1323 = P(1 + 5/100)^2

1323 = P(1.05)^2

1323 = P(1.1025)

P = 1323/1.1025

P = 1200

Therefore, the principal amount is Rs. 1200.

Explanation of Compound Interest

Compound interest is the interest earned not only on the initial principal amount but also on the accumulated interest of previous periods. This means that the interest is added to the principal amount at the end of each period, and the subsequent interest is calculated on the new total.

The formula for compound interest is:

Amount = P(1 + R/100)^n

Where, P is the principal amount, R is the rate of interest, and n is the time period.

When the interest is compounded annually, the formula becomes:

Amount = P(1 + R/100)^n

When the interest is compounded half-yearly, the formula becomes:

Amount = P(1 + R/200)^(2n)

When the interest is compounded quarterly, the formula becomes:

Amount = P(1 + R/400)^(4n)

Conclusion

In this question, we have calculated the principal amount using the formula for compound interest. It is important to understand the concept of compound interest as it is widely used in various financial calculations, such as loans, investments, and savings.