Compound interest: Compound interest is one of the most prominent and important topics in the quantitative skills section. Compound interest is usually asked in the set of 1 to 2 questions. So, to excel in these subjects, the aspirants will have to know how to solve them. To help the aspirants to solve the puzzles, in this article, we have provided all the necessary details related to compound interest like compound interest definition, tips, tricks, concepts, questions, answers , explanations, etc.
Definition of Compound Interest
Compound interest occurs when interest is added to the amount of capital invested or borrowed, and then the interest rate is applied to the new capital. Compound interest can be thought of as “interest on interest”. It will grow a sum at a faster rate than simple interest, which is calculated on the principal amount. This is the interest on a loan or deposit calculated both on the initial capital and on the accumulated interest from previous periods.
How to Calculate Compound Interest
Candidates can calculate compound interest with a simple formula. It is calculated by multiplying the first principal amount by one and adding the increased annual interest rate to the number of compound periods minus one.
The the compound interest formula is:
A = P (1+r/n)NT
P= Principal amount
N= Time period
R = interest rate
Compound Interest Tips, Tricks, and Concepts
- Interest calculated on the initial principal is called compound interest and includes all accrued interest from previous periods on a deposit or loan.
- Interest can be compounded according to a given frequency schedule, from continuous to daily, monthly or annually.
- When we calculate compound interest, the number of compounding periods makes a significant difference.
- To calculate compound interest, we multiply the original principal amount by one plus the annual interest rate increased to the number of compound periods minus one.
Questions, answers and explanations about compound interest
Q1. A man has invested an amount in a ‘P’ scheme which offers 10% CIPA for 3 years and earns Rs. 1655. Find the interest earned by a man, if he has invested the full amount he receives from the ‘P’ scheme ‘, in the Q scheme which offers 8% SIPA for 5 years.
Q2. A sum becomes Rs. 4840 in two years and Rs. 5856.4 in four years when compounded annually. What would be the amount if the same sum were invested at 15% SI for 3 years (in Rs.)?
Q3. The difference between the interest received when a sum is invested at 15% per annum in SI for two years and the interest received when this sum is invested at 20% per annum for one year compounded semi-annually is Rs 432, find the sum ?
(a) rupees. 5400
(b) rupees. 5000
(c) rupees. 4500
(d) rupees. 4000
(e) rupees. 4800
Q4. If Sonu invests compound interest sum annually and earns Rs. 372 in second year. Find the amount he invested (in rupees)?
Q5. Veer, Sameer and Neeraj invested their amount on simple interest in a ratio of 4:5:8 respectively. The interest rate for Veer, Sameer and Neeraj is 12.5%, 10% and 20% respectively. After two years of investment, Veer, Sameer and Neeraj joined a company with the amount obtained from interest only for 12 months, 18 months and 15 months respectively. If the total profit of the company is Rs 8450, find the difference between the profit shares of Neeraj and Sameer?
(a) 3625 rupees.
(b) 3650 rupees.
(c) 3850 rupees.
(d) 3750 rupees.
(e) 3250 rupees.
Q6. Aman divided his total savings between his son and daughter in a 5:3 ratio. His son invested his share in CI for two years at the rate of 10% and received the interest Rs. 480 less than his sister, who invested her share in SI for three years at the rate of 15%. Find the share of Aman’s son and daughter respectively?
(a) Rs.10,800, Rs.2,000
(b) Rs.9600, Rs.4200
(c) Rs8000, Rs4800.
(d) Rs 9800, Rs 3000
(e) Rs.7,000, Rs.5,800
Q7. An amount is invested in SI for three years at a rate of 5% and SI received on this amount is Rs. 180. If the same amount is invested for two years at 10% CI for the first year & R% CI for 2n/a year and the total CI received in two years is Rs. 318 then find the value of R?
Q8. A lent B Rs.12000 on CI at the rate of 20% per annum and at the end of the first year B borrowed Rs. ‘x’ more from A on CI at the same rate. If at the end of the second year, B has paid a total amount of Rs.20400 to A, then find the value of x?
Q9. A sum becomes Rs 6888 in 8 years and becomes Rs 7380 in 10 years at the same rate on simple interest. Find the compound interest earned in 3 years on Rs 4000 at the same interest rate.
(a) Rs 630.5
(b) Rs 1261
(c) 784.5 rupees
(d) Rs 1008
(e) Rs 1080
Q10. Satish invested Rs. 14,000 partially in Scheme A which offers 20% per annum to CI and remaining in Scheme B which offers 25% to SI Find the amount invested in Scheme B if the total interest earned after 2 years is from Rs. 6640.
Q11. Deepak invested some amount on SI on Rs.47000 and rest amount on CI for two years. If SI offers 12% per annum and CI offers 15% compounding per annum and CI is 532.5 rupees higher than SI, then find the amount invested by Deepak on CI?
Q12. Aman spends 18,000 partially in Plan “A” which offers 15% per year to CI and stays in Plan “B” which offers 25% per year to CI. After 2 years, he earns Rs. 7725 as interest. Find the amount invested in pattern ‘B’ is what percentage less or more than the amount invested in pattern ‘A’.
Q13. If the difference between SI on Rs. 2000 and CI on 1600 for two years at the same interest rate is Rs. 64. Find the interest rate. (IF > CI)
(at 5 %
Q14. Arun invested Rs. 10,000 for three years in CI at the rate of 20% per annum. If in 1st and 3rd year interest is calculated annually and in 2n/a year, it was calculated semi-annually, then find the total interest received by Arun in three years?
(a) Rs 7,554
(b) Rs 7424
(c) Rs 7868
(d) Rs 7262
(e) Rs 7,343
Q15. The difference between the IC received during the first 1.5 years (compounded annually) at 20% per annum and the IC received during the last 1.5 years when compounded semi-annually at the same interest rate on the same sum is Rs 715, then find the sum?
(a) rupees. 66,000
(b) rupees. 65,000
(c) rupees. 64,500
(d) rupees. 65,500
(e) rupees. 67,500
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FAQ: Compound interest
Q1. What is compound interest?
Rep. Compound interest occurs when interest is added to the amount of capital invested or borrowed, and then the interest rate is applied to the new capital. Compound interest can be thought of as “interest on interest”.
Q2. In which exam are questions on compound interest asked?
Rep. Compound interest questions are asked in various competitions such as IBPS PO, SSC GCL, MTS, Railways, SBI PO, SO Clerk, RRB PO, Clerk, SO, LIC AAO, ADO, Assistant, etc.
Q2. How to calculate compound interest?
Rep. Candidates can check out short tips and advice for calculating compound interest in the article above.