Most Important Formulas

Simple and Compound Interest

1. If the interest is calculated on the original principal for any length of time, then
it is called simple interest.
𝑷×𝑹×𝑻
𝑺𝑰 =
𝟏𝟎𝟎
Example:
Find the simple interest on RS. 200 for 5 years at 6% per annum.
a) RS. 50
b) RS. 60
c) RS. 70
d) RS. 65

Solution:
𝑃×𝑅×𝑇 200×6×5
𝑆𝐼 = = = 60₹
100 100

2. If the sum of money becomes n times in ‘T’ years at simple interest, then rate
𝟏𝟎𝟎(𝒏−𝟏)
of interest will be, 𝑹 = ( )%
𝑻
Example:
A sum of money becomes four times in 20 years at SI. Find the rate of
interest.
a) 5%
b) 10%
c) 15%
d) None of these

Solution:

100(𝑛 − 1) 100(4 − 1)
𝑅=( )% = = 5 × 3 = 15%
𝑇 20
3. If a sum of money at a certain rate of interest becomes n times in 𝑇1 year and
m times in 𝑇2 year, then formula for 𝑇2 will be given as
𝒎−𝟏
𝑻𝟐 = ( ) × 𝑻𝟏
𝒏−𝟏
Example:
A sum becomes two times in 5 year at a certain rate of interest. Find the time
in which the same amount will be 8 times at the same rate of interest.
a) 30 years
b) 35 years
c) 40 years
d) 45 years

Solution:

𝑚−1 (8 − 1)
𝑇2 = ( ) × 𝑇1 = × 5 = 35 𝑦𝑒𝑎𝑟𝑠
𝑛−1 (2 − 1)

4. If a sum of money in a certain time becomes n times at 𝑅1 rate of interest and

m times at 𝑅2 rate of interest, then formula for 𝑅2 will be given as
𝒎−𝟏
𝑹𝟐 = ( ) × 𝑹𝟏
𝒏−𝟏
Example:
In a certain time, a sum becomes 3 times at the rate of 5% per annum. At
what rate of interest, the same sum becomes 6 times in same duration?
a) 12%
b) 12.5%
c) 10%
d) 10.5%
Solution:
𝑚−1 (6 − 1)
𝑅2 = ( ) × 𝑅1 = × 5 = 12.5%
𝑛−1 (3 − 1)

5. Let principal = P, rate = R% p.a. and time = n years. If the interest is

compounded annually, then
 𝑹 𝒏
𝑨 = 𝑷 (𝟏 + )
𝟏𝟎𝟎
Compound interest = 𝐴𝑚𝑜𝑢𝑛𝑡 − 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙
𝑹 𝒏
Compound interest = 𝑷 [(𝟏 + ) − 𝟏]
𝟏𝟎𝟎
Example:
Find the compound interest on RS. 8000 at 4% p.a. for 2 years, compounded
annually
a) RS. 652.80
b) RS. 600
c) RS. 500
d) RS. 400

Solution:

Compound interest
𝑅 𝑛 4 2
= 𝑃 [(1 + ) − 1] = 8000 [(1 + 100) − 1] = 652.80₹
100

𝑹
6. If interest is compounded half – yearly, then 𝑹 = and 𝒏 = 𝟐𝒏
𝟐
𝑹 𝟐𝒏
𝑨 = 𝑷 (𝟏 + )
𝟐𝟎𝟎
Example:
Find the compound interest on RS. 5000 in 2 years at 4% pa, if the interest
being compounded half yearly.
a) Rs. 400
b) RS. 412.16
c) RS. 512
d) RS. 41
Solution:
Compound interest
𝑅 2𝑛 4 4
= 𝑃 [(1 + ) − 1] = 5000 [(1 + ) − 1] = 412.16₹
200 200
 𝑹
7. If interest is compounded quarterly, then 𝑹 = and 𝒏 = 𝟒𝒏
𝟒
𝑹 𝟒𝒏
𝑨 = 𝑷 (𝟏 + )
𝟒𝟎𝟎
Example:
Find the compound interest on RS. 8000 at 20% p.a. for 9 months,
compounded quarterly.
a) Rs. 1000
b) RS. 1200
c) RS. 1232
d) RS. 1261

Solution:
9 3
𝑛 = 9 𝑚𝑜𝑛𝑡ℎ𝑠 = = 𝑦𝑟
12 4
Compound interest

𝑅 4𝑛 20 3
= 𝑃 [(1 + ) − 1] = 8000 [(1 + ) − 1] = 1261₹
200 400

8. If interest is compounded annually but time is in fraction

𝑎
(suppose 𝑡𝑖𝑚𝑒 = 𝑛 𝑦𝑟), then
𝑏
𝒂
𝑹 𝒏 ( )𝑹
𝑨 = 𝑷 (𝟏 + ) × (𝟏 + 𝒃 )
𝟏𝟎𝟎 𝟏𝟎𝟎

Example:
Find the compound interest on RS. 2000 at 15% p.a. for 2 years 4 months,
compounded annually.
a) RS. 777.25
b) RS. 567.25
c) RS. 700
d) None of these

Solution:
 𝑎
𝑅 𝑛 ( )𝑅
𝐴 = 𝑃 (1 + ) × (1 + 𝑏 )
100 100
1
15 2 (3) 15 2000 × 23 × 23 × 21
= 2000 (1 + ) × (1 + )= = 2777.25
100 100 20 × 20 × 20

𝐶𝐼 = 𝐴 − 𝑃 = 2777.25 − 2000 = 777.25₹

9. If the rates of interest are 𝑅1 %, 𝑅2 % and 𝑅3 % for 1st, 2nd and 3rd year
respectively, then
𝑹𝟏 𝑹𝟐 𝑹𝟑
𝑨 = 𝑷 (𝟏 + ) × (𝟏 + ) × (𝟏 + )
𝟏𝟎𝟎 𝟏𝟎𝟎 𝟏𝟎𝟎
Example:
What sum of money at compound interest will amount to RS. 4499.04 in 3
years, if the rate of interest is 3% for the 1st year, 4% for the 2nd year and 5%
for the 3rd year?
a) Rs. 3000
b) RS. 4000
c) RS. 5000
d) RS. 6000
Solution:
𝑅1 𝑅2 𝑅3
𝐴 = 𝑃 (1 + ) × (1 + ) × (1 + )
100 100 100
3 4 5
4499.04 = 𝑃 (1 + ) × (1 + ) × (1 + )
100 100 100
103 104 105
4499.04 = 𝑃 ( )×( )×( )
100 100 100
4499.04 × 100 × 100 × 100
𝑃= = 4000
103 × 104 × 105

10. The difference D between simple and compound interest accrued on ₹ P at

the rate of interest of R% is given by
𝑷𝑹𝟐
For 2 years, 𝑫 =
𝟏𝟎𝟎𝟐
 𝑷𝑹𝟐 (𝟑𝟎𝟎+𝑹)
For, 3 years, 𝑫 =
𝟏𝟎𝟎𝟑
Example:
The difference between compound interest and simple interest for 2 years at
rate of 5% per annum is RS. 5, then find the sum.
a) Rs. 3000
b) RS. 4000
c) RS. 2000
d) RS. 6000
Solution:
𝑃𝑅 2
For 2 years, 𝐷 =
1002

𝑃(5)2
5=
1002
10000
𝑃= = 2000 ₹
5
11. If a certain sum at compound interest becomes A1 , in n years and A2
in (n + 1) years, then
(𝑨𝟐 −𝑨𝟏 )
Rate of compound interest = × 𝟏𝟎𝟎%
𝑨𝟏
𝑨 𝒏
Sum= 𝑨𝟏 ( 𝟏)
𝑨 𝟐
Example:
A sum of money invested at compound interest amounts to RS. 800 in 2
years and RS. 840 in 3 years. Find the rate of interest per annum.
a) 4%
b) 5%
c) 3%
d) 6%

Solution:
(𝐴2 −𝐴1 ) (840−800)
Rate of compound interest = × 100% = × 100% = 5%
𝐴1 800
12. If a certain sum at compound interest becomes x times in 𝑛1 year and y times
in 𝑛2 years, then
𝟏 𝟏
𝒙𝒏𝟏 = 𝒚𝒏𝟐
Example:
If a certain sum at compound interest becomes double in 5 years, then in
how many years, it will be 16 times at the same rate of interest?
a) 20 years
b) 21 years
c) 22 years
d) None of these
Solution:
1 1
𝑛
𝑥 1 = 𝑛
𝑦 2
1 1
25 = 𝑛
16 2
1 4
25 = 𝑛
2 2
1 4
=
5 𝑛2
𝑛2 = 20 𝑦𝑒𝑎𝑟𝑠