Explanation:

when interest is reckoned using compound interest, interest being compounded annually.

The difference in the simple interest and compound interest for two years is on account of the interest paid on the first year's interest  Hence 12% of simple interest = 90 = simple interest =90/0.12 =750.

As the simple interest for a year = 750 @ 12% p.a., the principal =750/0.12 = Rs.6250.

If the principal is 6250, then the amount outstanding at the end of 3 years = 6250 + 3(simple interest on 6250) + 3 (interest on simple interest) + 1 (interest on interest on interest) = 6250 +3(750) + 3(90) + 1(10.80) = 8780.80.

Hence, option 4 is the correct answer.