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4 views

SICI

Uploaded by

sandeepjainscm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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SPS​ VVM/ SICI

INTEREST

INTEREST is money paid to the lender by the borrower for using his money for a
specified period of time. Various terms and their general representation are as follows:
●​ Interest: Money paid by the borrower for using the lender’s money. Denoted by I.
●​ Principal: The original sum borrowed. Denoted by P.
●​ Time: Time for which money is borrowed. Denoted by n. (n is expressed in the
number of periods, which is normally one year.)
●​ Rate of interest: Rate at which interest is calculated on the original sum.
Denoted by r and is expressed as a percentage or decimal fraction.
●​ Amount: Sum of principal and interest. Denoted by A.

Simple Interest

When interest is calculated every year (or every time period) on the original principal,
i.e., the sum at the beginning of first year, such interest is called simple interest.

Here, year after year, even though the interest gets accumulated and is due to the
lender, this accumulated interest is not taken into account for the purpose of calculating
interest for latter years.

where P, n, r are as explained above.

SAGAR PUBLIC SCHOOL, BHOPAL 1


SPS​ VVM/ SICI

Compound Interest

Under compound interest, the interest is added to the principal at the end of each period
to arrive at the new principal for the next period.

In other words, the amount at the end of first year (or period) will become the principal
for the second year (or period); the amount at the end of second year (or period)
becomes the principal for the third year (or period) and so on.

Here compounding only once in a year, then

If compounding k times in a year, then

SAGAR PUBLIC SCHOOL, BHOPAL 2


SPS​ VVM/ SICI

Present Value Under Simple Interest

The principal P is amounting to X in n periods. From this, we know that

Hence, in general, the present value P of an amount X coming (or due) after n periods
is given by

SAGAR PUBLIC SCHOOL, BHOPAL 3


SPS​ VVM/ SICI

Present Value Under Compound Interest

REPAYMENT IN EQUAL INSTALMENTS— COMPOUND INTEREST

SAGAR PUBLIC SCHOOL, BHOPAL 4


SPS​ VVM/ SICI

Q1 Find the simple interest on a principal of ₹2400 at 5% p.a. for Ans: ₹480
a period of 4 years.

Q2 If ₹4000 becomes ₹4800 in 2 years, what will ₹6000 become Ans: ₹9600
at the end of 6 years at the same rate of interest, under simple
interest?

Q3 What is the amount under compound interest at the end of Ans:₹15972


three years on a sum of ₹12000 at 10% p.a.?

Q4 What principal would amount to ₹9600 in 6 years at the rate of Ans: ₹6000
10% p.a. simple interest?

Q5 What sum would amount to ₹29282 in three years at the rate Ans: `22000
of 10% p.a. compound interest?

Q6 If a certain sum doubles in five years under simple interest, in Ans: 25 years
how many years would it become 6 times itself at the same
rate of interest?

Q7 A certain sum triples in 3 years under compound interest at a Ans: 6 years


certain rate of interest. In how many years would the sum
become 9 times itself at the same rate under compound
interest?

Q8 If ₹8000 has been lent at 10% p.a. the interest being Ans:
compounded annually, what is the interest for the fifth year? ₹1171.28.

Hint:

Q9 How much will ₹20000 approximately amount to in 2 years at Ans: ₹26709


15% p.a., the interest being compounded every 6 months?

Q10 If the rate of interest is 20% p.a., where interest is Ans: 21.36%
compounded every 4 months, what is the effective rate of p.a.
interest per annum?

Q11 A certain sum amounts to ₹7200 after 2 years and to ₹8640 Ans: ₹5000
after 3 years, interest being compounded annually. Find the
principal and the rate of interest which are whole numbers.

SAGAR PUBLIC SCHOOL, BHOPAL 5


SPS​ VVM/ SICI

Q12 The difference between the compound interest and the simple Ans: ₹1600
interest for two years on a certain sum at a certain rate of
interest is ₹64. Find the principal if the compound interest for
two years is ₹704.

Q13 The compound interest on a certain sum at a certain rate of Ans: ₹10000
interest for the second year is ₹2400 and for the third year is and 20% p.a.
₹2880. Find the principal and the rate of interest.

Q14 Sanjay borrowed ₹14000 at 10% p.a. He repaid ₹8000 at the Ans: ₹8140
end of the 1st year. What amount should he pay at the end of
the 2nd year to completely discharge the loan, compound
interest being reckoned annually?

SAGAR PUBLIC SCHOOL, BHOPAL 6

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