Simple Interest & Compound Interest

SIMPLE INTEREST & COMPOUND INTEREST
BASIC CONCEPTS
P = Principle = Any sum of money that is either borrowed or received.

R%= Rate of Interest = some percentage is levied on that sum of money that is either borrowed or received
always calculated on per annum basis.
n = No of years = The above said percentage is levied for a particular term of years.
I = Interest = for a certain number of years & for a certain rate of interest we will be gaining some amount and
that amount is interest
A= Amount = P + I = the total outcome of principle with interest
Simple Interest
In simple interest, the rate of interest on the sum that is invested in the first year
year is calculated as such that for
every year the interest will be same.
S.I. = (PNR/100)
Compound Interest
In compound interest, the interest will be added back to the sum after each and every year and the rate of interest
is calculated for each years added sum and interest.
C.I. = P [ 1+ ( r / 100 ) ]n – P (for interest alone)
C.I. = P [ 1 + ( r / 100 ) ]n ( for amount after n years )
RATE OF INTEREST CALCULATION

Rate of interest is always being calculated under per annum basis. So we must read the question carefully
because in few question they may ask that interest being calculated under these two situations
i) Calculated Per Half Annum :
A half year is six months and we have two six months in a year so when the question is being asked for half
yearly we have to divide rate of interest into half but multiple no of years tol its twice
n = n ( p.a. ) * 2
r = r ( p.a. ) / 2
ii ) Calculated per quarter annum:
Similarly a year has four quarters in it so this will be for quarterly computed problems
n = n ( p.a. ) * 4
r = r ( p.a. ) / 4
Example 1
A sum of Rs. 25000 becomes Rs. 27250 at the end of 3 years when calculated at simple interest. Find the rate of
interest.
Sol:
Principle = 25000, so interest would be ,
Simple interest = 27250 – 25000 = 2250
Number of years = 3 years.
SI = PNR / 100
R = SI * 100 / PN
R = 2250 * 100 / 25000 * 3
.`. R = 3%.
STELLAR ACADEMY FOR EDUCATION

Practice Exercise - 1
1. For how many

y years should a person invest 10,000 to get a simple interest of 2,000 @ 5% p.a.?
(1) 4 (2) 5 (3) 6 (4) None of these
2. At what rate of interest will a person

rson earn a simple interest of 1,800 on a sum of 15,000 forr three years?
(1) 2% (2) 3% (3) 3.5% (4) 4%
3. Due to fall in the annual rate of interest from 6% to 5 ½% a per

person’s
son’s yearly income reduces by 600. What is
his capital?
(1) 1.2 lakhs (2) 12,000 (3) 60,000 (4) 6 lakhs
4. Ram had invested an amount under simple interest. After 8 years he gets 96% of what he had invested. What
is the rate of interest?
(1) 6% (2) 12% (3) 10% (4) Cannot be determined
5. A sum of money lent out at simple interest amounts to 1600 in 2 years and 2500 in 5 years. Find the sum
and the rate of interest
(1) 2,000, 20% (2) 1,000, 10% (3) 1,000, 30% (4) 1,000, 15%
6. For how many y years should a person invest 4,000 @ 5% p.a., to get an interest of 410, under compound
interest, interest being compounded annually?
(1) 3 (2) 2 (3) 4 (4) None of these
7. At what rate of interest willl a person earn an interest of 4,641 on a sum of 10,000 for four years, interest
being compounded annually?
(1) 10% (2) 8% (3) 11% (4) 9%
8. On what sum willl a person earn an interest of 4,167 for three years @ 15% interest p.a., interest being
compounded annually?
(1) 7,500 (2) 7,000 (3) 8,000 (4) 8,500
9. Determine the rate of interest for a sum that becomes 343/216 times itself in 3 years interest being
compounded annually.
(1) 20% (2) 10% (3) 16 2/3% (4) 12%
10. An amount is compounded annually. Interes

Interest earned for the first year is 100. Interest
est earned at the end of
the second year is 205. What is the rate of interest and the principal?
(1) 5%, 2,000 (2) 10%, 4,000 (3) 10%, 2,000 (4)5%,,4,000
11. A sum of 10,000 is lent under er simple interest partly @ 5% p.a. and the remaining @ 7% p.a. for one year. If
the total interest earned is ` 600 then find the sum invested @ 7% p.a.?
(1) 5,000 (2) 5,500 (3) 4,000 (4) 4,500
12. A sum is invested under simple interest @ 3% p.a. forfor the first two years, @ 4% p.a. for the next three years
and @ 5% p.a. for the remaining years. If the total interest
inte earned for the 6 years is 920 then find the sum.
(1) 3,500 (2) 4,000 (3) 4,500 (4) 3,750
13. A sum becomes three times itself in eieight years under simple interest. In how many yearss will the sum
Become fifteen times itself at the same rate of interest under simple interest?
(1) 54 (2) 55 (3) 56 (4) Cannot be determined

14. A sum becomes three times itself in three years under compound interest. In how many years under
compound interest will the sum become 81 times itself at the same rate of interest?
(1) 12 (2) 10 (3) 11 (4) Cannot be determined
15. A person invests ` 20,000 @ 5% p.a. under simple

simp interest for one year and 10,000 @ 7% p.a. simple
interest for one year under Scheme 1. If the total sum is invested @ 5.5% p.a. under simple intere
interest for 2 years
in Scheme 2 then find under which Scheme the person gets higher interest.
(1) Scheme 1 (2) Scheme 2 (3) S

Scheme 1 or Scheme 2 (4) Cannot be determined
16. A sum lent @ 20% p.a. under simple interest for two years yields 95 more than when lent at 18% p.a.
interest compounded annually for two years. Find the sum.
(1) 12,000 (2) 11,500 (3) 13,000 (4) 12,500
17. A sum is invested for three years under compound interest. The annual rates of interest for the first, second
and third years are 4% p.a., 5% p.a. and 6% p.a. respectively.
respectively. Find the sum if the amount at the end of the third
year is ` 11,575.2?
(1) 9,000 (2) 9,500 (3) 10,000 (4)10,500
18. The compound interest and simple interest on a certain sum for two years are ` 1,470 and ` 1,400
respectively. Find the sum
m and rate of interest.
(1) 7,000 & 10% (2) 7,000 & 15% (3) 8,000 & 15% (4) 8,000 & 10%
19. Ravi had invested `1,50,000 in his factory. During the first two years his profits were 10% and 15%
respectively. If he reinvested the profit of each year
year at the beginning of the next year, his total profit would be
(1) 39,750 (2) 40,000 (3) 15,000 (4) 24,750
20. What is the interest earned on a sum of ` 16,000 for two years @10% p.a. interest compounded half yearly?
(1) 4,844.1 (2) 3,844.1 (3) 3,448.1 (4) 4,448.1

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P = Principle = Any sum of money that is either borrowed or received.

RATE OF INTEREST CALCULATION

i) Calculated Per Half Annum :

ii ) Calculated per quarter annum:

STELLAR ACADEMY FOR EDUCATION

1. For how many

2. At what rate of interest will a person

3. Due to fall in the annual rate of interest from 6% to 5 ½% a per

10. An amount is compounded annually. Interes

STELLAR ACADEMY FOR EDUCATION

(1) 12 (2) 10 (3) 11 (4) Cannot be determined

15. A person invests ` 20,000 @ 5% p.a. under simple

(1) Scheme 1 (2) Scheme 2 (3) S

STELLAR ACADEMY FOR EDUCATION

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