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COMPOUND INTEREST
In simple interest, the amount of interest due is paid at the end of the year or other fixed
period. This interest can again be loaned or invested to earn further interest. Thus interest is
added to the original principal to form a new principal which may be reloaned or re-invested.
Such money is said to be lent at compound interest.This process can be repeated for severeal

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time periods. The difference between the original principal and the amount at the end of the last
period is known as compound interest. Interest is generally paid at the end of each year. half-

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year or quarter- year. In other words it is compounded annually, semi-annuallyor quarterly.

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T
⎛ R ⎞
I. Compound Interest = P ⎜ 1 + ⎟ −P
⎝ 100 ⎠

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Where P is the principal, R the rate % per annum and t the numbers of years.

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II. Let Principal=P ,Time = T years and Rate = R% p.a.

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1. When interest is compounded annually:
T
⎛ R ⎞
Amount = P ⎜ 1 + ⎟
c
⎝ 100 ⎠
du
2. When interest is compounded half-yearly:
2T
⎡ 1 ⎤
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⎢ 2R⎥
Amount = P ⎢1 + ⎥
⎢ 100 ⎥
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⎣ ⎦
3. When interest is compounded quarterly:
ak

4T
⎡ 1 ⎤
⎢ 4R⎥
Amount = P ⎢1 + ⎥
⎢ 100 ⎥
.s

⎣ ⎦
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1
3
4. When time is a fraction of a year say 5 years.
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⎛ 1 ⎞
R
R ⎞ ⎜ 5 ⎟
3
⎛
Amount = P ⎜ 1 + ⎟ × ⎜1 +
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⎟
⎝ 100 ⎠ ⎜ 100 ⎟
⎝ ⎠
5. When rate of interest is R1%, R2% and R3% for 1st year, 2nd year and 3rd year
respectively. and the amount is A. Then

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⎛ R ⎞ ⎛ R ⎞ ⎛ R ⎞
A = P ⎜1 + 1 ⎟ × ⎜ 1 + 2 ⎟ × ⎜ 1+ 3 ⎟
⎝ 100 ⎠ ⎝ 100 ⎠ ⎝ 100 ⎠
III. If A is the amount, P is the principal, R the rate % per annum and T the number of years
then
T
⎛ 100 ⎞
P = A⎜

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⎟
⎝ 100 + R ⎠

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IV. If S.I and C.I. is given for 2 yrs only then,

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2 × Difference in C.I. & S.I.
Rate = × 100
S.I.

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V. Relation between C.I. and S.I.

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RT
S.I. = × C.I.
⎡⎛ R ⎞
T
⎤
100 ⎢⎜1 + −

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⎟ 1⎥
⎢⎣⎝ 100 ⎠ ⎥⎦
c
VI. When difference between C.I. and S.I. on a certain sum of money for 2 yrs at R% is Rs. x,
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then the sum
Difference in × (100 )
2 2
⎛ 100 ⎞
Sum = = x ⎜ ⎟
Rate 2 ⎝ R ⎠
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VII. If the difference between CI and SI on a certain sum for 3 yrs at R% is Rs.x then the sum:
sh

Difference in × (100 ) x × (100 )

3 3

Sum = = 2
R (300 + R)
2
R (300 + R)
ak

VIII.Equal annual instalment to pay the debt amount:

Let the value of each equal annual instalment = Rs.a
.s

Rate of interest = R% per annum

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Number of instalment per year = n

Number of years = T
w

Total number of instalments = n × T

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Debt amount = D
n ×T
⎡ 100 ⎛ 100 ⎞
2
⎛ 100 ⎞ ⎤
Then D = a ⎢ +⎜ ⎟ + ...⎜ ⎟ ⎥
⎢⎣100 + R ⎝ 100 + R ⎠ ⎝ 100 + R ⎠ ⎥⎦

IX. If a certain amount become x times in T years then,

The same amount become x2 times in 2T years
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The same amount become x3 times in 3T years

The same amount become xn times in nT years

Problems

1. Find the compound interest on Rs. 1,600 for 3 years at 3 3 % per annum.

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1) 188 2) 186.83 3) 180 4) 185.60

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Ans: 2
Sol : Compound Interest

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3
⎛ 15 ⎞
⎜ ⎟ ⎡⎛ 15 ⎞
3
⎤

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= 1600 ⎜1 + 4 − + −
⎟ 1600 = 1600 ⎢⎜ 1 ⎟ 1⎥
⎜ 100 ⎟ ⎣⎢⎝ 400 ⎠ ⎦⎥

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⎝ ⎠
⎡⎛ 83 ⎞3 ⎤

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= 1600 ⎢⎜ ⎟ − 1⎥ = 1600 ⎡ 571787 − 5120000 ⎤
⎢⎣⎝ 80 ⎠ ⎥⎦ ⎢⎣ 512000 ⎥⎦

=
1600 × 59787
= Rs.186.83
c
512000
du

2. Find the compound interest on Rs. 800 for 3 years at 5%

1) 128.60 2) 136.83 3) 126.10 4) 125.60
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Ans: 3
Sol: P = Rs.800, R= 5, n =3
sh

n 3
⎛ R ⎞ ⎛ 5 ⎞
∴ A=P ⎜1 + ⎟ = 800 ⎜ 1 + ⎟
⎝ 100 ⎠ ⎝ 100 ⎠
ak

3
⎛ 21 ⎞ 9261
= 800 × ⎜ ⎟ = = Rs.926.10
⎝ ⎠
20 10
.s

∴ C.I. = Rs.926.10 – 800= Rs. 126.10

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3. Find compound interest on Rs. 100000 at 20% p.a. for 2 years 3 months, compounded
annually.
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1) 52500 2) 51000 3) 52000 4) 51200

Ans: 4
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1
Sol: Time = 2 yrs 3months or 2 years
4
P = Rs. 100000, R = 20%
2
⎛ 20 ⎞
Amount in 2 years = 100000 × ⎜ 1+ ⎟
⎝ 100 ⎠

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1
× 20
This amount must be increased by 4 of itself
100
(The interest for the remaining 3 months)
⎛ 1 ⎞
⎜ 2× 20 ⎟
1 ⎛ 20 ⎞ 4
∴ Amount in 2 years = Rs. 100000 × ⎜ 1+ ⎟ × ⎜1+ ⎟
4 ⎝ 100 ⎠ ⎜ 100 ⎟

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⎝ ⎠
6 6 21
= Rs.100000 × × × = Rs 151200.

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5 5 20
∴ Compound Interest = Rs (151200 –100000) = Rs. 51200.

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4. What is the compound interest on Rs. 2000 for two years at 5% interest per annum

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for the first year and at 10% interest per annum for the 2nd year?
1) 200 2) 310 3) 280 4) 330

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Ans: 2
Sol: Compound Interest

at
⎛ 5 ⎞⎛ 10 ⎞
= 2000 ⎜1 + ⎟⎜ 1 + ⎟ − 2000
⎝ 100 ⎠⎝ 100 ⎠ c
⎛ 21 11 ⎞
= 2000 ⎜ × ⎟ − 2000 = 2310 − 2000 = Rs. 310.
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⎝ 20 10 ⎠

5. Find the compound interest on Rs. 6250 at 12% per annum for 1 year, compounded
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half-yearly?
1) 725.50 2) 751.00 3) 772.50 4) 712.40
sh

Ans: 3
Sol: Rate = 20% per annum= 6% per half years, Time= 1 year – 2 half years
2
⎛ 6 ⎞
ak

Amount = Rs. 6250 × ⎜ 1 + ⎟

⎝ 100 ⎠
53 53
.s

= Rs.6250 × × = Rs.7022.50
50 50
Compound Interest = Rs. (7022.50 – 6250) = Rs. 772.50.
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6. Find the principal which will amount to Rs. 1352 in 2 years at 4% compound interest.
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1) 1250 2) 2510 3) 1520 4) 12500

Ans: 1
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Sol: Suppose principal= P

2
⎛ 4 ⎞
Then 1352= P ⎜1 + ⎟ or P × 26 × 26 = 1352 or P = 1352 × 25 × 25 = 1250
⎝ 100 ⎠ 25 25 26 × 26

7. What is the principal amount which earns Rs.132 as compound interest for the second
year at 10% per annum?
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1) 2500 2) 1020 3) 1500 4) 1200
Ans: 4
Sol: Let x be the principal at the end of the first year.
x × 10 × 1
∴ = 132 or x= 1320.
100
Let y be the original principal
y × 10 × 1 y × 10 × 1
Then y + = 1320 or y + = 1320

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100 10
∴ Original principal = Rs. 1200.

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8. What is the time in which Rs. 2000 will amount to Rs. 2420 at per ammum compound

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interest?
1) 2 yrs 4 months 2) 2 yrs 6 months 3) 1 yr 8 months 4) 2 yrs

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Ans: 4
n
⎛ 10 ⎞

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Sol: 2000 ⎜1 + 100 ⎟ = Rs.2420
⎝ ⎠

at
n 2
⎛ 10 ⎞ 2420 121 ⎛ 11 ⎞
⇒ ⎜1 + ⎟ = = =⎜ ⎟
⎝ 100 ⎠ 2000 100 ⎝ 10 ⎠ c
n 2
⎛ 11 ⎞ ⎛ 11 ⎞
⇒ ⎜ ⎟ = ⎜ ⎟ or n = 2
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⎝ 10 ⎠ ⎝ 10 ⎠
∴ Time = 2 years.
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9. The difference between the compound interest and the simple interest on a certain
sum at 5% per annum for 2 years is Rs. 1.50. Find the sum.
sh

1) 500 2) 620 3) 600 4) 550

Ans: 3
Sol: Suppose the sum = Rs. 100
ak

100 × 5 × 2
Then S.I. = = Rs.10
100
2
⎛ 21 21 ⎞
.s

⎛ 5 ⎞
C.I. = Rs.100 × ⎜1 + ⎟ − Rs.100 = ⎜ 100 × 20 × 20 ⎟ − 100
⎝ 100 ⎠ ⎝ ⎠
w

441 41
= − 100 = Rs
4 4
w

41
Difference between CI and SI = − 10
w

4
1
= Rs. or Rs.0.25
4
If difference is Re. 0.25 the sum = Rs. 100
100 × 100
If difference is Rs.1, the sum = Rs.
25

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100 × 100 150

If difference is Rs.1.5, the sum = Rs. × = Rs.600
25 100
Direct formula: [for 2 yrs only]
⎛ 100 ⎞ 100 × 100
Sum = Difference ⎜ ⎟ = 1.50 × = Rs.600
⎝ Rate ⎠ 5×5

Exercise

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1. A tree increases annually by the th of its height. By how much will it increase after
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2 years, if it stands today 64 cm high.
1) 100 cm 2) 81 cm 3) 84 cm 4) 90 cm

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2. What sum will become Rs. 6690 after 3 years and Rs. 10,035 after six years on

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compound interest?
1) 4500 2) 4020 3) 4460 4) 4200

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3. Find the rate of compound interest at which Rs. 80000 will become Rs. 88,200 in 2
years?
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1) 5% 2) 10% 3) 6% 4) 7.2%
4. Compound interest on a certain sum for 2 years at 3% is Rs. 101.50 P. What would be
the simple interest?
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1) 200 2) 100 3) 150 4) 120

sh

5. What will be the difference between compound interest compounded annually and
simple interest on Rs. 500 in a year at 10% per annum?
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1) 50 2) 40 3) 55 4) 60
6. If the difference between C.I. and S.I. on a certain sum of money for 3 years at 5%
.s

per annum is Rs. 122. Find the sum.

1) 15000 2) 10000 3) 15500 4) 16000
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7. A sum of money four folds itself in 24 years on compound interst. With the same rate
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percent the amount triples itself in

1) 12 years 2) 15 years 3) 16 years 4) 18 years
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8. In what time will R. 8000 amount to Rs. 9261 at 5%p.a. compound interest?
1) 2 years 2) 3 years 3) 4 years 4) None

Answers
1. 2 2. 3 3. 1 4. 2 5. 1 6. 4 7. 4 8. 2
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