Best Answer:
To find the principal amount, you need to discount the future value so that the present value can be found. Discounting is same as compounding but computed backward.

Formula for this would be: PV = FV/(1+r)^n

where PV is present value, FV is future value, r is discount or interest rate and n is periods or no of yrs.

For your question, the solution is 270.40/(1+0.04)^2 which comes to Rs 250.00.

So Rs 250 is the principal which amounts to Rs 270.40 in 2 yrs @ 4% per annum.

To cross check it, compound Rs 250 for 2 yrs with 4% and you will get Rs 270.40.

(P.S. All other answers above me are wrong because the first two are compounding Rs 270.40 instead of discounting it which makes it FV more that Rs 270.40 which is a BIG error and the third one has got the values wrong)

Source(s):
I am a Chartered Financial Analyst (CFA)