Simple & Compound Interest


  • Converted IIM Indore call | Mentor for Banking/RBI/SSC exams


    Concepts:

    Simple Interest, SI = PNR/100
    Where P is Principal, R is rate of interest and N is the time period in years.

    Let P is Principal, R is rate of interest and N is time period in years,
    When interest is compounded annually,
    Amount = P (1+(R/100))^N

    When interest is compounded half yearly,
    Amount = P (1+(R/2)/100)^2N

    When interest is compounded quarterly,
    Amount = P (1+(R/4)/100) ^4N

    When interest is compounded annually, but time period in fraction say a b/c years
    Amount = P*(1+R/100)^a * (1+bR/100c)

    When rates are different for different years say R1 % , R2 % and R3 % for 1st,2nd and 3rd year respectively
    Amount = P (1+ (R1/100)) *(1+ (R2/100)) * (1+ (R3/100))

    Questions:

    Simple interest on a certain sum of money for 3 years at 8% per annum is half the compound interest on Rs. 4000 for 2 years at 10% per annum. Find the sum placed on simple interest.

    Let Principal is P
    P * 3 * 8/100 = 1/2(4000(110/100)^2-4000)
    6P/25 = 1/2(40 * 121 -4000) = 1/2(4840-4000) = 1/2 (840) = 420
    P = 25 * 420/6 = 25 * 70 = 1750

    Find the difference between simple interest and compound on Rs. 1200 for one year at 10% per annum reckoned half-yearly?

    P = 1200 N = 1 YEAR R= 10%
    SI = 1200 * 1 * 10/100 = 120 RS
    CI = 1200(1+(10/2)/100)^2 – 1200
    = 1200 * 441/400 -1200
    = 1200 * (441/400 – 1)
    = 1200 * 41/400
    = 123 RS
    Difference = 3RS

    The difference between compound interest and simple interest on an amount of Rs. 15,000 for 2 years is Rs. 96. What is the rate of interest per annum?

    (15000(1+R/100) ^2-15000) – 15000 * 2 * R/100 = 96
    15000((1+R/100) ^2-1 -2R/100) = 96
    15000(1+2R/100+R^2/10000-1-2R/100) = 96
    15000 * R^2/10000 = 96
    3R^2 = 192
    R^2 = 64
    R = 8%

    The difference between simple and compound interests compounded annually on a certain sum of money for 2 years at 4% per annum is Re. 1. Find the sum.

    Let P = 1 Rs
    SI = 1 * 2 * 4/100 = 2/25
    CI = 1 * (104/100)^2 – 1 = 676/625-1 = 51/625
    CI-SI = 51/625 – 2/25
    = 51-50/625 = 1/625
    Hence for 1 Rs sum difference is 1/625 Rs
    So for getting 1 Rs difference Sum will be 625 Rs.

    The compound interest on Rs. 30,000 at 7% per annum is Rs. 4347. Find the period (in years)

    Total Amount = 30000+4347 = 34347
    34347 = 30000 * (1+7/100) ^N
    (107/100)^N = 34347/30000 = 11449/10000
    (107/100)^N = 11449/10000
    N = 2 Years


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