INTEREST

&
ANNUITY
GROUP NAME- PARADOX
LEADER- MALIK FAIYAZ
CLASS- FY B.COM
BATCH-2022-23
 INTEREST

SIMPLE
INTEREST When A Person Borrow some Money
from Other Person or Institution , the Borrower has to Pay some
Charge to the Lender for the use of Money this Charge is known as
INTEREST


COMPOUND
INTEREST When Interest Is Added to the
Principal At the end of each Period and the Total so Obtained is
Treated as Principal for the Next Quarter/Period. Then the Interest
so Obtained is called as COMPOUND INTEREST

NAME- ANTRE TEJAS

 TERM’S AND DEFINATION’S
PRINCIPAL (SUM) :- THE SUM BORROW IS CALLED
PRINCIPAL.

 AMOUNT :- THE TOTAL SUM RETURNED BY THE

BORROWER WITH PRINCIPAL TOGETHER AND
INTEREST IS CALLED AMOUNT.

TERM {PERIOD} (n) :- THE TIME PERIOD FOR

WHICH THE SUM IS BRROWED IS CALLED AS THE
TERM .

• TERMS ARE OF 3 MONTHS , 6 MONTHS , AND 12

MONTHS ARE KNOWN AS QUARTERRLY , HALF AND
YEARLY .
 FORMULA’S OF INTEREST
 SIMPLE INTEREST
FORMULA = P.R.N./100
Here ,
p= Principal
r= Rate Of Interest
n= Number Of Year

Compound interest
FORMULA= A - P
Here,
A= Amount & P= Principal
FORMULA FOR FINDING AMOUNT = P {1+r/100}^n
Here,
p=principal
r= Rate of Interest
n= Number of Year
A= Amount
 EXAMPLE’S ON INTERST
C.I. >FIND THE COMPOUND INTERST
S.I. > FIND SIPLE INTEREST ON RS.1250 ON RS.10000 FOR 4 YEARS @5% p.a.
FOR THE PERIOD OF 2.5 YEARS @12% p.a.
 Here,
 FORMULA= p.r.n/100 A=? P= 10000 , r=5% , n=4 , C.I.=?
Here, FORMULA OF C.I.= A-P
p= 1250 THEREFORE FOR FINDIG A
=P{1+R/100}^n
r= 12%
A = 10000{1+5/100}^4
n= 2.5 A = 10000{105/100}^4
Therefore: A = 10000{1.05}^4
S.I=1250*12*2.5/100 A = 10000{1.21}
= 37500/100 A = 10000*1.21
A = 12,100
THEREFORE FORMULA OF C.I.= A – P
S.I.= 375
A=12100 & P = 10000
C.I. = 12100 – 10000
C.I. = 2100
 IMPORTANT POINT’S
 PRINCIPAL IS ALWAYS LOWER THAN AMOUNT
 TO FINDOUT AMOUNT (A) , PRINCIPAL (P) , NUMBER OF
YEARS (N) , RATE OF INTEREST (r) IN COMPOUND
INTEREST THE FORMULA OF AMOUNT IS UESD
A= P{1+r/100}^n
 TO FINDOUT AMOUNT (A) , PRINCIPAL (P) , NUMBER OF
YEAR (N) , RATE OF INTEREST (r) IN SIMPLE INTERET THE
FORMULA IS USED = [ A = P{1+r.n/100} ]
 TO FINDOUT AMOUNT (A) : MULTIPLICATION IS DONE
BETWEEN PRINCIPAL (P) AND THE VALUE OBTAINED (x)
{A = P*x}
 TO FINDOUT PRINCIPAL (P) : DIVIDATION IS DONE
BETWEEN THE VALUE OBTAINED (x) AND AMOUNT (A)
{P = A/x }
 TO FINDOUT NUMBER OF YEAR (n) & RATE OF
INTEREST (r) : CROSS MULTIPLICATION IS DONE BETWEEN
THE TWO AMOUNT OBTAINED
 NOMINAL AND EFFECTIVE RATE OF INTEREST
 THE REPUTED FINANCIAL INSTITUTE ADVERTISE A
DEPOSITE SCHEME AS UNDER
TENURE 12 MONTHS 24 MONTHS 36 MONTHS
ANNUAL QUATERLY ANNUAL QUATERLY ANNUAL QUATERLY
REGULAR
8.75% 8.45% 9.10% 8.35% 9.40% 9.10%
SENIOR 8.95% 8.70% 9.25% 9.10% 9.65% 9.35%
CITIZEN

CONSIDER THE CASE REGULAR FIXED DEPOSITS FOR 12 MONTHS FOR

COMPARISON SUPPOSE RS. 100 DEPOSITED ANNUALY AS WELL AS
QUATERLY INTEREST SCHEME
 SOLUTION :>
ANNUAL (12 MONTHS) = 100 + 8.75 = RS. 108.75
QUATERLY ( 4 QUARTERS) = ? R = 8.75/4 = 2.1125 n = 1*4 = 4

THEREFORE FORMULA : A = p{1+r/100}^n

A = 100{1+2.1125/100}^4
A = 100 {102.1125/100}^4
A = 100{1.021125}^4
A = 100*1.08721550

A = 108.7215502
 ANNUAL INTEREST RECEIVED = 108.70 – 100 = RS.
8.70

QUARTERLY INTEREST RECEIVED = 108.72 - 100 =

RS. 8.72

THE AMOUNT BY THE WAY OF QUARTERLY AS PER

CALCULATION IS HIGHER

NOTE THAT QUARTERLY RATE OF INTEREST APPEAR

TO BE LESS BUT YEILD IS MORE. THE QUARTERLY RATE @
8.45 IS CALLED AS EFFECTIVE RATE OF INTEREST.
THE ANNUAL RATE @ 8.70 IS CALLED AS NOMINAL RATE
OF INTEREST

THEREFORE IN THE ABOVE EXAMPLE THE PERSON

INVEST MONEY QUARTERLY WILL YEILD HIGHER INCOME
 ANNUITY
INTRODUCTION :-
WE KNOW THAT SO MANY BANKS AS
WELL AS FINANCIAL INSTITUTE/ COMPANIES GIVES
LOANS FOR PURCHASE HOUSEHOLD ITEMS SUCH
AS TV SETS , FURNITURE , FLATS , MOTOR CAR etc .
SUPPOSE THAT AN OWNERSHIP FLAT WHOSE
CASH DOWN PRICE IS RS. 50,00,000 CAN BE
PURCHASED BY PAYING RS. 10,00,000 CASH DOWN
AND REMAINING AMOUNTS IN MONTHLY
INSTALLMENTS OF RS. 50,000 FOR 10 YEARS.
A SERIES OF PAYMENT MADE AT
EQUAL INTERVALS SUCH SERIES IS CALLED AS
ANNUITY
FOR EXAMPLE :- INSURANCE PREMIUM ,
RECURRING DEPOSIT etc.
 TERM’S AND DEFINATION
 SIMPLE ANNUITY :- WHEN PAYMENTS ARE EQUAL THE
ANNUITY IS CALLED SIMPLE ANNUITY .

PERIOD OF ANNUITY :- THE TIME INTERVAL BETWEEN TWO

SUCCESSIVE PAYMENTS IS CALLED THE PERIOD OF ANNUITY . IT
MAY BE A MONTHLY , QUARTERLY , A HALF
YEARLY OR EVEN YEARLY .

 STATUS OF ANNUITY :- IN THE ABOVE EXAMPLE THE

PAYMENT OF FLAT ARE TO BE MADE FOR 10 YEARS THIS SPAN IS
CALLED STATUS OF ANNUITY .

PRESENT VALUE OF ANNUITY (p) :- THE AMOUNT OF LOAN

(50,000 – 10,000 = 40,000) IS CALLED PRESENT VALUE OF ANNUITY.

AMOUNT OF ANNUITY (A) :- THIS LOAN IS REPAID ALONG

WITH COMPOUND INTEREST , IN THE PRESENT CASE THE AMOUNT
IS RS. 50,00,000 THIS IS CALLED AMOUNT OF ANNUITY.
 Term’s And Defination
PERPECTUITY :- IN SOME OF ANNUITIES , THE PAYMENT ARE
MADE FOR EVER IS CALLED PERPECTUIT.
FOR EXAMPLE :- ACADEMIC PRIZES .

 IMMEDIATE ANNUITIES / IMMEDIATE DUE

ANNUITY :-

 ANNUITY DUES :- IF PAYMENT OF AN ANNUITY ARE MADE

AT THE BEGINNING OF EACH PERIOD , THEN THE ANNUITY IS
CALLED AS ANNUITY DUES .
FOR EXAMPLE - INSURANCE PREMIUM , RECURRING
DEPOSIT etc .

 IMMEDIATE ANNUITY :- WHEN PAYMENTS ARE MADE AT

THE END OF EACH PERIOD THEN THE ANNUITY CALEED
IMMEDIATE ANNUITY .

FOR EXAMPLE :- RENT PAID .

 FORMULA OF ANNUITY
FORMULA FOR PRESENT VALUE OF ANNUITY :-

P = X/i {1 - (1 + i ) ^-n

HERE ,
n = NUMBER OF INSTALLMENT
X = PERIODIC INSTALLMENT
i = r/100 = RATE OF INTEREST PER RUPEE
PER PERIOD

 FORMULA FOR AMOUNT OF IMMEDIATE ANNUITY :-

A = X/i { ( 1+i ) ^n - 1 }

HERE ,
n = NUMBER OF INSTALLMENT
X = PERIODIC INSTALLMENT
i = r/100 = RATE OF INTEREST PER
RUPEE PER PERIOD
 EXAMPLES ON ANNUITY
FIND THE AMOUNT OF ANNUITY OF RS.  FIND THE PRESENT VALUE OF
400 PAYABLE QUARTERLY FOR 3 YEARS ANNUITY OF RS. 2500 FOR 20
@ 15% p.a. YEARS @ 10% p.a.
 ANS:-  ANS:-
HERE, A = ?, i = 15/100 = 0.0375, HERE , P = ? , N= 20 , R = 10
n = 3*4 = 12 , X = 400 , i = 10/100 = 0.1
FORMULA : A = X/i { ( 1+ i )^n - 1 } FORMULA: P = X/ i {1 – ( 1+ i )^-n}
=400/0.0375 { (1 + 0.0375)^12 – 1} = 2500/ 0.1 { 1 – ( 1 + 0.1 )^-20}
= 25000 { 1 – ( 1.1 )^-20}
= 10,666.66{ ( 1.0375)^12 – 1 } = 25000 { 1 – (0.1486) }
= 10,666.66 { ( 1.555) – 1 } = 25000 ( 0.8514)
= 10,666.66 { 0.55 } P = 21285
= 10,666.66 * 0.55
= 5924.84
EQUATED MONTHLY INSTALLMENTS( EMI )
INTRODUCTION : -
OF LATE WE FIND MORE AND MORE PEOPLE PURCHASING
VEHICLES AND HOMES BY TAKING LOANS FROM THE BANK . THE
REPAYMENT IS GENERALLY MADE IN MONTHLY INSTALMENT OVER A
PERIOD OF ONE YEAR , TWO YEAR , FIVE YEARS etc . THIS MONTHLY
INSTALMENT OF REPAYMENT IS CALLED EQUATED MONTHLY
INSTALMENT . THERE ARE TWO WAYS BY WHICH BANKS OR HOUSING
FINANCE COMPANIES CHARGE INTEREST.

REDUCING BALANCE  FLAT INTEREST RATE :-

METHOD :-
FORMULA :-
FORMULA :
EMI = A/K
P = X/i { 1- ( 1 + i ) ^-n }
FOR FINDING A = P {1+ r.n. /100 }
Here,
HERE,
p = PRESENT VALUE OF LOAN
A = AMOUNT OF LOAN
X = PERIODIC INSTALLMENT
K = NUMBER OF MONTHS
i = RATE OF INTEREST
r = RATE OF INTEREST
i = r /1200 : 100 * 12 MONTHS =1200
n = NUMBER OF YEARS
n = NUMBER OF INSTALLMENT (MONTHS)
P = PRESENT VALUE OF LOAN
 EXAMPLE ON EMI
MR. A BORROWED FROM
FIND EMI ON A LOAN OF RS. 1,00,000 TO BE X COMPNY @10% p.a. RS. 80,000 FOR
PAID IN 2 YRS @12 % p.a ON THE OUTSTANDIG PERIOD OF 8 YEARS . FIND EMI ?
AMOUNT AT THE BEGINNING OF EACH MONTH .
 ANS :- HERE ,
 ANS :- HERE, P = 80,000 , R = 10% , N = 8YRS
P = 1,00,000 , N = 2 * 12 = 24 n = 8 * 12 = 96
I = 12% = 12/1200= 0.01 , EMI = ? BY FLAT INTEREST RATE :
BY REDUCIG BALANCE METHOD : FORMULA : EMI = A/K
A = P { 1 + r.n /100}
FORMULA : P=X/i{1- (i + 1 )^-n }
A = 80,000 {1+ 10 *8 /100}
1,00,000 = X/0.01{1 – (0.01+1)^-n}
A = 80,000{ 1 + 80/100}
1,00,000 *0.01 = X {1- (1.01)^-24} A = 80,000 { 180/100}
1,000 = X { 1 – ( 0.7875)} A = 80,000 { 1.80}
1,000 = X { 0.2125} A = 1,44,000
X = 1,000/0.2125 THEREFORE EMI = A/K
=1,44,000/96
X = 4705.88
EMI = 15000
THEREFORE EMI IS RS. 4705.88