SIMPLE AND COMPOUND INTEREST

The official discovery of interest was found in the

16th century by Jacob Bernoulli. He introduced a
constant ‘e’ for the interest. He gave a formula
limit n approaches infinity (1 + 1/n) ^ n = e,
where n represents the number of times the
interest is compounded in a year.
The history of compound interest goes back
thousands of years, at least to Babylon, the
traditional for Israel. What compounding means is
the adding of accumulated interest back to the
principal so that interest is earned on interest
from that moment on. It is the result of reinvesting
interest, rather than paying it out, so that interest
in the next period is then earned on the principal sum plus previously accumulated interest.
Compound interest is standard in finance and economics.

Look at the picture and observe the amount in Simple and Compound Interest. Is there any
difference between them?
 SIMPLE INTEREST:

Principal: The money borrowed (lent or invested) is called Principal.

Principal

Amount
Interest: The additional money paid by the borrower to the
Rate
moneylender instead of the money used is called Interest.
Interest

Simple Interest
Amount: The total money paid by the borrower to the moneylender is
called the amount. Thus, Amount = Principal + Interest. Compound Interest

Time

Rate: It is the interest paid on ₹ 100 for a specified period.

For example:
1 1
(i) Rate of 6 4% per annum means that the interest paid on ₹100 for one year is ₹64.
(ii) A rate of 1.25% per month means that the interest paid on ₹100 for one month is
₹1.25.
(iii)Rate of 2.5% per quarterly means that the interest paid on ₹100 for 3 months is ₹2.5.

However, if the period for the interest rate is not given, then we shall take the period as
one year.
Time: It is the time for which the money is borrowed (or invested).

Simple interest: It is the interest calculated on the original money (principal) at a given rate
of interest for any given time.
Simple interest is given by the formula:

2
In solving problems on simple interest, remember the following:
If P denotes the principal, R the rate of interest, T the time for which the money is borrowed
(or invested), I (or S.I.) the simple interest and A the amount, then

SIMPLE and COMPOUND INTEREST:

For counting the time between two given dates, only one of the two dates is counted (either
first or last). Usually, we excluded the date of start and include the date of return.
For converting the time in days into years, always divide by 365, whether it is a leap year or
not.
The time must be taken in accordance with the interest rate percentage. Thus, if the interest
rate is per month then time must be taken in months.

KEY POINTS:

 Simple interest is calculated by multiplying the daily interest rate by the

principal, by the number of days that elapse between payments.
 Simple interest benefits consumers who pay their loans on time or early each
month.
 Auto loans and short-term personal loans are usually simple interest loans.

3
Example 1: Find the simple interest on ₹7850 at 7.5% per annum for 3 years 4 months. Also
find the amount.
Solution: Here, P(principal) = ₹7850, R (rate of interest) = 7.5% p.a,
4 1 10
T (time) = 3 years 4 months = 312 years = 33 years = 3
years.
10
�×�×� 7850×7.5×
∴ I (simple interest) = 100
=₹ 100
3

= ₹ (785 ×2.5) = ₹ 1962.50

Amount = P + I = ₹7850 + 1962.50 = ₹ 9812.50
2
Example 2: Find the simple interest on ₹ 15840 at 6 3% per annum from 18th October 2011
to 12th March 2012. Also, find the amount.
Solution: Sense of Requirement
2 20
Here, P = ₹ 15840, R = 63% p.a = 3
% p.a.,

October November December January February March

T= 13 + 30 + 31 + 31 + 29 + 12
(31 – 18) (leap year)

146 2
= 146 days = 365 years = 5 years

Think of Methods
���
∴ I (simple interest) = 100
=

Apply your Method

15840 ×20/3×2/5 1548×4
100
=₹ 15
= ₹422.40

Review the answer

Amount = P + I = ₹15840 + 422.40 = ₹ 16262.40.

Example3: What sum of money will fetch ₹661.50 as a simple interest in one year 9 months
at
2
6 3 % per annum?

4
Solution:
Sense of Requirement

Let the sum of money (principal) be ₹P.

1323 2 20
Interest = ₹ 661.50 = ₹ 2
, rate = 6 3% p.a. = 3
% p.a.,
9 3 7
Time = 1 year 9 months = 112 years = 14 years = 4 years.

Think of Methods
1 ×100
Using P= ��
, we get

Apply your Method

1323
×100 1323×5×6
P = 20/3×7/4
2
= 1325/2 ×100 ×3/20 ×4/7 = 7
= 5670

Hence, the required sum of money = ₹5670.

Review the answer

Can you check the answer?

Example4:
How long will it take for ₹5660 invested at 10% per annum simple interest to amount to
₹7641?
Solution:
Sense of Requirement

Here, P = ₹5660, A = ₹7641, R = 10% p.a.

I = A – P = ₹7641 - ₹5660 = ₹1981
Let T years be the required time.

Think of Methods
� ×100
Using T= ��
,

5
Apply your Method
1981 ×100 1981 7 1
we get T = 5660×10
= 566
= 2 = 3 2.
1
Hence, the required time = 3 2 years = 3 years 6 months.

Review the answer

Can you check the answer?

1
Example 5: In what time will the simple interest on a certain sum of money at 64% per
3
annum be 8 of itself?

Solution:
_______________________________________________________ Name the Step.
Let the sum of money (principal) be ₹P, then
3 3
Interest = 8
of ₹P = ₹ 8P

_______________________________________________________ Name the Step.

Let T years be the required time
�×100
Using, T = ��
,

_______________________________________________________ Name the Step.

3
×100 3 4
we get T = 8�
25 = 8 × 100 ×25 = 6.
�×
4

Hence, the required time = 6 years.

Review the answer

Can you check the answer?

6
Example 6: If the interest charged for 9 months be 0.09 times the money borrowed, find the
rate of simple interest per annum.
Solution:
Sense of Requirement

Let the money borrowed (principal) be ₹P, then

9
I (simple interest) = 0.09 of ₹ P = ₹ 100P
9 3
Time = 9 months = 12 years = 4 years

Let R be the rate percent of simple interest per annum.

Think of Methods
� ×100
Using R = � �
,

Apply your Method

9
� ×100 4
we get R = 100 3 = 9×3 = 12.
�×
4

Hence, the rate of simple interest per annum = 12%.

Review the answer

Can you check the answer?

5
Example7: At what rate percent simple interest will a sum of money will amount to 3 of itself
in 6 years 8 months?
Solution: Let the principal be ₹P, then
5 5
Amount = 3 of ₹ P = ₹ 3 P
5
I (Interest) = amount – principal = ₹ 3 P - ₹ P
5 5 2
₹ �−� =₹ −1 P=₹ P
3 3 3

8 2 20
Time = 6 years 8 months = 612 years = 6 3 years = 3
years

Let R be the rate of percent per annum of simple interest.

2
� ×100 � ×100 200 3
Using R = � �
, we get R = 3 20 = 3
×20 = 10
�×
3

7
 Hence, the required rate of interest = 10% per annum.
1
Example 8: What sum of money will amount to ₹4230 in 2 2 years at 7% per annum simple
interest?
Solution: Let the sum of money (principal) be ₹ P.
1 5
A (amount) = ₹ 4230, T (time) = 22 years = 2 years,

R (rate) = 7% per annum

��
Using the formula A= (1 + 100
)P, we get
5
7× 7 47 4230 ×40
4230 = 1 + 1002 P = 1 + 40 P = 40P = P = 47
= 3600.

Hence, the required sum of money = ₹3600.

Example 9: At a certain rate of simple interest, ₹3200 becomes ₹4000 in 2 years. What sum
of money will become ₹ 7755 in 3 years at the same rate of interest?
Solution: Sense of Requirement
Here, P = ₹3200, A = ₹ 4000, T = 2 years
I = A – P = ₹ 4000- ₹3200 = ₹800
Think of Methods
Let the rate of simple interest be R% per annum, then
� ×100 800×100 25
R= � �
= 3200 ×2
= 2
.
25
Hence, the rate of simple interest is 2
% p,a,. T = 3 years

Apply your Method

Let the required sum of money (principal) be ₹P

��
Using the formula A = 1 + 100
P, we get
25
×� 3 11 7755×8
7755 = 1 + 2
100
P= 1+8 P= 8
P=P= 11
= 5640

Review the answer

Hence, the required sum of money = ₹5640.

Example 10: The amounts of a certain sum of money with simple interest at a certain rate of
interest are ₹ 5440 in 3 years and ₹ 6400 in 5 years. Find the sum and the rate of interest.
Solution: Amount in 3 years - ₹5440 and amount in 5 years = ₹6400
∴Principal + Interest of 3 years = ₹ 5440 ………. (i)

8
 And principal + Interest of 5 years = ₹6400 ………..(ii)
Subtracting (i) from (ii), we get
Interest of 2 years = ₹ 960
960
∴Interest of 1 year = ₹ 2
= ₹480

∴Interest of 3 years = ₹ (480 × 3) = ₹ 1440

∴ From (i), principal + ₹ 1440 = ₹ 5440
= Principal = ₹5440 - ₹1440 = ₹4000
Let the rate of simple interest be R% p.a., then
� ×100 480 ×100
R= � �
= 4000 ×1
= 12

Hence, the required sum is ₹4000 and the rate of interest is 12%.

Example 11: A sum of money lent at 12% per annum simple interest for 3 years yields a
certain amount of interest. If lent for 5 years, it would have yielded ₹2040 more. Find the
sum.

Solution: Let the sum of money (principal) lent be ₹ P, Rate = 12% p.a.

�×12×3 9
Interest for 3 years = ₹ 100
= ₹25P

�×12×5 3
Interest for 5 years = ₹ 100
= ₹ 5P

3 9
According to given information, 5P - 25P = 2040 (Multiply by 25)

= 15P – 9P = 2040 × 25 = 6P = 2040 ×25

2040 ×25
P= 6
= 340 × 25 = 8500

Hence, the required sum of money = ₹ 8500.

9
Name: Grade: 8 Date:
Subject:-Interest Time:30 min Code: KS-G8-N- SI-Worksheet-1
SubTopic: Simple Interest Skill: Acquaintance

1. Find the simple interest on. Also find the amount in each case.
1
(i) ₹4000 at 7 2 % p.a. for 3 years 3 months

2
(ii) ₹ 1200 at 6% p.a. for 6 3 months.

(iii) ₹ 2688 at 7.5% p.a. for 3 years 5 months

10
 (iv) ₹ 5000 for 1 year 3 months at 7 paise per rupee per annum

(v) ₹ 1360 for 1 year 4 months at 1.25% per month.

1
2. Find the simple interest and the amount of ₹ 3675 at 8 3% from 10th December 2011
to 4th May 2012.

11
3. What sum of money will yield ₹170.10 as a simple interest in 2 years 3 months at 6%
per annum?

4. Find the rate of interest when ₹800 fetches ₹ 130 as a simple interest in 2 years 6
months.

12
 5. Find the time when simple interest on ₹3.3 lakhs at 6.5% per annum is ₹75075.

Don’t forget to be the STAR!

Sense of Requirement
Think of Methods
Apply your Method
Review the answer

13
Name: Grade: 8 Date:
Subject:-Interest Time:30 min Code: KS-G8-N- SI-Worksheet-2
SubTopic: Simple Interest Skill: Insight

1. Find the sum of money when

1 1
(i) Simple interest at 7 4% p.a. for 2 2 years is ₹2356.25

(ii) The final amount is ₹ 11300 at 4% p.a. for 3 years 3 months.

2. A man borrowed ₹ 1500 on 1st April and returned ₹ 1572 on 13th June the same year.
Find the rate of interest charged.

14
 3
3. The interest on a sum of money at the end of 5 years is 5th of the sum. Find the rate of
interest.

1
4. How long will it take a certain sum of money to triple itself at 133% per annum simple
interest?

5. At a certain rate of simple interest ₹4050 amounts to ₹4576.50 in 2 years. At the same
rate of simple interest, how much would ₹1 lakh amount to in 3 years?

15
Name: Grade: 8 Date:
Subject:-Interest SubTopic: Time:30 min Code: KS-G8-N- SI-Worksheet-3
Simple Interest Skill: Enrichment

1. What sum of money invested at 7.5% p.a. simple interest for 2 years produces twice as
much interest as ₹9600 in 3 years 6 months at 10% p.a. simple interest?
[hint: Let money invested be ₹P. According to given information]
7
� ×7.5 ×2 9600 ×10 ×
₹ 100
= twice of ₹ 100
2

Solution:1st case given

P=9600
R =10%
T =3 years or7/2, years
���
SI = 100

Putting the given values

9600×10×7
SI = 2×100

=96x35=Rs3360/-
new SI is 2 x 3360=6720/-
again for new SI
6720=P×T×R/100
�×75×2
6720= 10×100
100
6720x 15 =P

therefore P=44800/- is the required answer.

2. What sum of money invested at 7.5% per annum will yield the same simple interest
in 4 years as ₹5000 yields in 5 years at 9% per annum?

16
3. A certain sum of money amounts to ₹ 7650 in 4 years and ₹8100 in 6 years. Find the
sum and the rate of simple interest.

4. If the simple interest on ₹ 3600 is more than the interest on ₹3200 by ₹108 in 3 years,
find the rate of interest.

17
 5.Determine the simple interest for these loans.
a) $450 at 7% for 2 years. b) $5,200 at 4% for 3 years.

c) $1,300 at 5% for 6 years. d) $5,400 at 3.5% for 6 months.

Don’t forget to be the STAR!

Sense of Requirement
Think of Methods
Apply your Method
Review the answer

18
Compound Interest

Till now, you have learnt about simple interests. In simple interest, the principal
remains constant for the whole loan period. However, in practice, the method
according to which banks, post offices, insurance companies and other financial
institutions calculate interest is different from the one given above.
These institutions calculate the interest for one year. Then the yearly interest is
added to the principal and the amount so obtained is treated as the principal for
calculating the interest for the second year and so on. This process is repeated until
the amount for the whole loan period is found.
The difference between the final amount and the original principal (money borrowed)
is called the compound interest.
Compound interest in short is written as C.I.

Compound Interest=Amount-Principle

KEY POINTS:

 Compound interest (or compounding interest) is interest calculated on the initial

principal, which also includes all of the accumulated interest from previous
periods on a deposit or loan.
 Compound interest is calculated by multiplying the initial principal amount by
one plus the annual interest rate raised to the number of compound periods
minus one.
 Interest can be compounded on any given frequency schedule, from continuous
to daily to annually.
 When calculating compound interest, the number of compounding periods makes
a significant difference.

19
Difference between SI and CI

Remark:
In case of simple interest, the principal remains constant for the whole loan period in case of
compound interest, the principal goes on changing every year.
Example1: Calculate the compound interest on ₹ 12500 for 2 years at 6% per annum.
Solution: Rate of interest = 6% per annum, Principal for the first year = ₹ 12500
12500 ×6 ×1
Interest for the first year = ₹ 100
= ₹750

Amount at the end of first year = ₹ 12500 + 750 = ₹ 13250

Principal for the second year = ₹ 13250
13250 ×6 ×1
Interest for the second year = ₹ 100
= ₹795

Amount at the end of second year = ₹ 13250 + 795 = ₹ 14045

∴Compound interest for 2 years = final amount – (original) principal
₹14045 - ₹12500 = ₹1545.
Note:
The compound interest may also be obtained by adding together the interest of consecutive
years.
Thus, in the above example,
Compound interest for 2 years = interest of 1st year + interest of 2nd year
= ₹ 750 + ₹ 795 = ₹ 1545.

20
Example2: Kapil invests ₹ 12000 for 3 years at 10% per annum compound interest in Bank
of Baroda. Calculate:
(i) The compound interest for the second year.
(ii) The compound interest for the third year.

Solution: Rate of interest = 10% per annum

(i) Principal for the first year = ₹ 12000
12000×10×1
Interest for the first year = ₹ 100
= ₹ 1200
Amount at the end of first year = ₹ 12000 + 1200 = ₹ 13200
Principal for the second year = ₹ 13200
13200×10×1
Interest for the second year = ₹ 100
= ₹ 1320
∴Compound interest for the second year = ₹ 1320.
(ii) Amount at the end of second year = ₹ 13200 + ₹ 1320 = ₹14520
Principal for the third year = ₹ 14520
14520 ×10×1
Interest for the third year = ₹ 100
=₹1452
∴ Compound interest for the third year = ₹ 1452.

Example 3: Calculate the amount and the compound interest on ₹20000 for three years at
8% per annum.
Solution:
Sense of Requirement
Rate of interest = 8% per annum,
Principal for the first year = ₹ 20000
Think of Methods
20000 ×8×1
Interest for the first year = ₹ 100
= ₹1600

Apply your Method

Amount at the end of first year =₹ 20000 + ₹ 1600 = ₹ 21600
Principal for the second year = ₹ 21600
21600×8×1
Interest for the second year = ₹ 100
= ₹ 1728

Amount at the end of second = ₹ 21600 + ₹ 1728 = ₹ 23328

Principal for the third year = ₹23328
23328×8×1
Interest for the third year = ₹ 100
= ₹ 1866.24

Amount at the end of third year = ₹ 23328 + ₹ 1866.24 = ₹ 25194 .24

∴ Compound interest for 3 years = final amount – (original) principal

21
 ₹25194.24 - ₹20000 = ₹ 5194.24

Review the answer

Or compound interest for 3 years = interest of 1st year + interest of 2nd year + interest of 3rd
year
₹1600 + ₹ 1728 +₹ 1866.24
₹5194.24
Hence, amount = ₹ 25194.24 and compound interest = ₹5194.24
Example 4: Calculate the amount due and the compound interest on ₹ 10000 in 2 years when
the rate of interest on successive years is 8% and 9% respectively.
Solution: Principal for the first year = ₹ 10000, rate = 8% p.a
10000×8×1
Interest for the first year = ₹ 100
= ₹800

Amount at the end of first year = ₹ 10000 + ₹ 800 = ₹10800

Principal for the second year = ₹ 10800, rate = 9% p.a.
10800 ×9×1
Interest for the second year = ₹ 100
= ₹972

Amount at the end of second year = ₹ 10800 + ₹ 9732 = ₹ 11772

∴Amount due after 2 years = ₹ 11772
Compound interest for 2 years = final amount – (original) principal
= ₹11772 - ₹ 10000 = ₹ 1772.

22
 Find interest and amount to be paid on ₹ 15000 at 5% per annum after 2 years.
Note points
 My father has kept some money in the post office for 3 years. Every year the
money increases as more than the previous year.
 We have some money in the bank. Every year some interest is added to it,
which is shown in the passbook. This interest is not the same, each year it
increases.
 Normally, the interest paid or charged is never simple. The interest is
calculated on the amount of the previous year. This is known as interest
compounded or Compound Interest (C.I.).

Let us look at the difference between simple interest and compound interest. We start with `
100. Try completing the chart.

Note that in 3 years, Interest earned by Simple Interest = ₹ (130 – 100) = ₹ 30, whereas,
Interest earned by Compound Interest = ₹ (133.10 – 100) = ₹ 33.10 .

Note :Also that the Principal remains the same under Simple Interest, while it changes year
after year under compound interest.

23
Name: Grade: 8 Date:
Subject:-Interest Time:30 min Code:KS-G8-N- CI-Worksheet-1
SubTopic:Compound Interest Skill:Acquaintance

1. Calculate the compound interest on ₹ 6000 at 10% per annum for two years.

2. Salma borrowed from Mahila Samithi a sum of ₹ 1875 to purchase a sewing machine.

3. If the rate of interest is 4% per annum, what is the compound interest that she has to
pay after 2 years?

24
4. Find the amount and the compound interest on ₹ 8000 at 7% per annum for 2 years.

5. Jacob invests ₹ 12000 for 3 years at 10% per annum. Calculate the amount and the
compound interest that Jacob will get after 3 years.

25
Name: Grade: 8 Date:
Subject:-Interest Time:30 min Code:KS-G8-N- CI-Worksheet-2
SubTopic:Compound Skill:Insight
Interest

1. To renovate his shop, Gautham borrowed ₹ 16000 from Vijaya Bank for 3 years
At the rate of 15% per annum. What amount will he pay to the bank to clear his debit
after 3 years?

2. A man invests ₹ 46875 at 4% per annum compound interest for 3 years. Calculate:
(i) The interest for the first year.

(ii) The amount standing to his credit at the end of second year.

(iii) The interest for the third year.

26
3. Calculate the compound interest for the second year on ₹ 6000 invested for 3 years at
10% p.a. Also find the sum due at the end of third year.

4. Calculate the amount and the compound interest on ₹ 5000 in 2 years when the rate of
interest for successive years is 16% and 8% respectively.

27
5. Calculate the difference between the compound interest and the simple interest on ₹
20000 in 2 years at 8% per annum.

28
Name: Grade: 8 Date:
Subject:-Interest Time:30 min Code: KS-G8-N- CI-Worksheet-3
SubTopic: Compound Skill: Extension
Interest

1. A sum of ₹ 20,000 is borrowed by Heena for 2 years at an interest of 8% compounded

annually. Find the Compound Interest (C.I.) and the amount she has to pay at the end of 2
years.

Sol:Given that,
P=Rs.20,000
R=8%
T=2years
As compounded annually, n=2.

�
Amount at the end of 2 years =P(1+100)n

8
=20000(1+100​ )2

108 108
=20000×100×100

=Rs.23,328

Compound Interest (C.I) =23328−20000=Rs.3328

2. $3000 is invested at 3% annual interest for 3 years.Find

a. Simple Interest b. Compound Interest.

29
 1
3. Find CI paid when a sum of ₹ 10,000 is invested for 3 years at 82 % per annum
compounded annually.

4. Calculate the amount and compound interest on

1
(a) ₹ 10,800 for 3 years at 122 % per annum compounded annually.

1
(b) ₹ 18,000 for 2 2 years at 10% per annum compounded annually

30
 5.Harpreet borrowed Rs 20000 from her friend at 12% per annum simple interest. She
lent it to Alam at the same rate but compounded annually. Find her gain after 2 years.

Don’t forget to be the STAR!

Sense of Requirement
Think of Methods
Apply your Method
Review the answer

31
 Summary
 The money borrowed (lent or invested) is called principal (P).
 The additional money paid by the borrower to the moneylender in lieu of the
money used is called interest (I)
 The total money paid by the borrower to the moneylender is called amount (A).
Thus, amount = principal + interest i.e. A = P + I.
 The interest paid on ₹ 100 for a specified period is called rate of interest ®.
 The time for which the money is borrowed (lent or invested) is called time (T).
���
 The simple interest is given by the formula: I = 100
This formula can also be written as:
� ×100 � ×100 � ×100
P= � �
,R= � �
,T= � �
 In simple interest, the principal remains constant for the whole loan period
whereas, in compound interest, the principal goes on charging every year.
 In compound interest, the interest that occured at the end of the first year is
added to the (original) principal and the amount so obtained is treated as the
principal for calculating the interest for the second year and so on. This process is
repeated until the whole loan period.
 The difference between the final amount and the original principal is called the
compound interest.
 Compound interest may also be obtained by adding together the interest of
consecutive years.

32
33