COMPOUND

INTEREST

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Compound interest is calculated on the principal and the interest for the previous
period. The principal amount increases with every time period, as the interest
payable is added to the principal. This means interest is not only earned on the
principal, but also on the interest of the previous time periods. So that the
compound interest calculated is more than the simple interest on the same
amount of money deposited.

Interest is generally calculated on a yearly basis. Sometimes, it can be compounded

more than once within a year. It can be compounded half yearly, which means
twice a year, or quarterly, which means four times a year. The period for which
interest is calculated is called the conversion period. At the end of the conversion
period, the interest is added to the principal to get the new principal.

When interest is compounded half yearly, the interest rate will be half of the
annual interest rate. When interest is compounded half yearly, the time period will
be doubled.

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BASIC FORMULAE

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 𝐫 𝐭
1 When interest is compounded annually 𝐀 = 𝐏[𝟏 + ]
𝟏𝟎𝟎

𝐫/𝟐 𝟐𝒕 𝒓 𝟐𝒕
2 When interest is compounded half yearly 𝐀 = 𝐏[𝟏 + ] 𝐀 = 𝐏[𝟏 + ]
𝟏𝟎𝟎 𝟐𝟎𝟎

𝐫/𝟒 𝟒𝒕 𝒓 𝟒𝒕
3 When interest is compounded quarterly 𝐀 = 𝐏[𝟏 + ] 𝐀 = 𝐏[𝟏 + ]
𝟏𝟎𝟎 𝟒𝟎𝟎

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 𝐫/𝟏𝟐 𝟏𝟐𝒕 𝒓 𝟏𝟐𝒕
4 When interest is compounded monthly 𝐀 = 𝐏[𝟏 + ] 𝐀 = 𝐏[𝟏 + ]
𝟏𝟎𝟎 𝟏𝟐𝟎𝟎

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SHORT TRICKS

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 When interest is r1% for 1st year, 𝟏 𝒓 𝒓𝟐 𝒓𝟑
1 A = P[𝟏 + 𝟏𝟎𝟎 ][𝟏 + 𝟏𝟎𝟎 ][𝟏 + 𝟏𝟎𝟎 ]
r2% for 2nd year and r3% for 3rd year

When time is in fraction of years, 𝒓 𝐫/𝟑

A = 𝐏[𝟏 + 𝟏𝟎𝟎]𝟐 [𝟏 + 𝟏𝟎𝟎]
2 1
for example 23 years, then

𝑨
3 Present worth (P) of Rs. A due t years, P= 𝒓
[𝟏+𝟏𝟎𝟎]𝒕
hence is given by

𝒓
4 Compound interest on amount P is given by 𝐏[(𝟏 + 𝟏𝟎𝟎)𝒕 -1]

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5 When compound interest is compounded annually the ratio of 𝑺𝑰 𝒓𝒕
=
simple interest to compound interest at the same rate percent per 𝑪𝑰 𝟏𝟎𝟎[(𝟏 + 𝒓 )𝒕 −𝟏]
annum and for the same period is given by 𝟏𝟎𝟎

When interest is compounded annually but time is given in 𝑹 𝒕 (𝐚/𝐛)𝑹

6 𝐏(𝟏 + ) × (𝟏 + )
fraction (let time t=a/b year) then amount is given by 𝟏𝟎𝟎 𝟏𝟎𝟎

𝑹𝟏 𝒏 𝑹𝟐 𝒏 𝑹𝟑 𝒏
7 When rate of interest for n1, n2 and n3 year are R1, R2 𝐏(𝟏 + ) 𝟏 (𝟏 + ) 𝟐 (𝟏 + ) 𝟑
and R3 respectively then amount is given by 𝟏𝟎𝟎 𝟏𝟎𝟎 𝟏𝟎𝟎

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8 The difference D between simple and compound interest accured on Rs.P at
the rate of interest of R%

𝐏𝑹𝟐 𝐏𝑹𝟐 (𝟑𝟎𝟎+𝐫)

For 2 years, difference = (𝟏𝟎𝟎)𝟐 For 3 years, difference = (𝟏𝟎𝟎)𝟑

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LET’S SOLVE
1 Find the present worth of Rs.72900 due 2 years hence at 8% per annum.

SOLUTION

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2 On a certain sum the difference between compound interest and simple interest
at 5% per annum for 3 years is 15.25. Find the principal amount.

SOLUTION

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3 A sum at compound interest doubles itself in 15 years. In how much time will it
becomes 8 times?

SOLUTION

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4 The simple interest on Rs.25000 at a certain rate of interest for 3 years is Rs.7500.
What will be the compound interest on the same sum at the same rate and for
the same time?

SOLUTION

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5 The compound interest on Rs.22000 at the end of 2 years is 5596.80. What
will be the simple interest on the same sum for the same time at the same
rate?

SOLUTION

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6 What does Rs.250 amount to in 2 years with compound interest at the rate of 4%
in the 1st year and 8% in the second year?

SOLUTION

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7 A money lender borrows money at 4% per annum and pays the interest at the end of the year. He
lends it at 6% per annum compound interest compounded half yearly and receives the interest at
the end of the year. In this way he gains Rs.104.50 a year. Find the amount of money he borrows.

SOLUTION

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 Sita deposited Rs. 5000 at 10% simple interest for 2 years. How much more money will Sita have in
8 her account at the end of two years, if it is compounded semi annually? Sita deposited Rs. 5000 at
10% simple interest for 2 years. How much more money will Sita have in her account at the end of
two years, if it is compounded semi annually?

SOLUTION

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9 The compound interest on a sum of money for 2 years is Rs.615 and the simple interest for the same
period is Rs.600. Find the principal amount.

SOLUTION

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10 Find the time in which Rs.80000 amount to Rs.92610 at 10% p.a. compound interest, interest being
compounded semi annually.

SOLUTION

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11 Find the principal which will amount to Rs.270.40 in 2 years at the rate of 4% per annum compound
interest.

SOLUTION

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12 A man borrows Rs.21000 at 10% compound interest. How much he has to pay annually at the end of
each year to settle his loan in two years?

SOLUTION

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13 Find the compound interest on Rs.6000 at 10% per annum for 1.5 years when the interest is
compounded annually.

SOLUTION

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14 At what rate per annum will Rs.32000 yield a compound interest of Rs.5044 in 9 months interest being
compounded quarterly?

SOLUTION

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15 A sum of money on compound interest amount to Rs.10648 in 3 years and Rs.9680 in 2 years. Find
the rate of interest per annum.

SOLUTION

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16 What is the difference between compound interest on Rs.5000 for 1.5 years at 4% per annum according as the
interest is compounded yearly or half yearly?

SOLUTION

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17 The difference between the simple interest and compound interest on a certain sum of money for 2 years at
4% per annum is Rs.4. Find the sum.

SOLUTION

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18 On a certain sum of money the difference between the compound interest for a year, payable half
yearly and the simple interest for a year is Rs.180. If the rate of interest in both the cases is 10%
then find the sum.

SOLUTION

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19 The difference between simple interest and compound interest on a certain sum of money for 2 years
at 4% per annum is Rs.1. Find the sum of money.

SOLUTION

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20 If the compound interest on a certain sum of money for 2 years at 12.5% per annum is Rs.510, find the simple
interest on the same sum at the same rate and for the same time.

SOLUTION

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21 The compound interest on a certain sum of money invested for 2 years at 5% per annum is Rs.32
find the simple interest on the same sum at the same rate and for the same time.

SOLUTION

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22 The simple interest and the compound interest on a certain sum of money with a given rate for a
period of 2 years are Rs.900 and Rs.954 respectively. Find the sum of money.

SOLUTION

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23 The compound interest on a certain sum of money at a certain rate for 2 years is Rs.40.80 and the simple
interest on the same sum is Rs.40 at the same rate and for the same time. Find the rate of interest.

SOLUTION

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24 At a certain rate per annum the simple interest on a sum of money for one year is Rs.260 and the
compound interest on the same sum for two years is Rs.540.80. Find the rate of interest per annum.

SOLUTION

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25 A sum of Rs.3200 invested at 10% per annum compounded quarterly amount to Rs.3362. calculate the time
period.

SOLUTION

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26 A certain sum of money yields Rs.1261 as compound interest for 3 years at 5% per annum. Find the
sum.

SOLUTION

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27 Find the compound interest on Rs.16000 for 9 months at 20% per annum, interest being
compounded quarterly.

SOLUTION

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28 At what rate percent per annum will a sum of Rs.1000 amount to Rs.1102.50 in 2 years at compound interest?

SOLUTION

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29 A principal of Rs.10000 after 2 years compounded annually, the rate of interest being 10% per annum
during the first year and 12% per annum during the second year will amount to how much?

SOLUTION

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30 An amount of money appreciates to Rs.7000 after 4 years and to Rs.10000 after 8 years at a certain compound
interest compounded annually. Find the initial amount of money.

SOLUTION

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