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Compound Interest

# Compound Interest

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01/05/2014

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Compound Interest
Important Facts And Formula
1.

Let Principal = P, Rate = R% per annum, Time =
n
years
.
2
.

When interest is compound Annually:
Amount = P
1
+
n

100
3
.

When interest is compounded Half-yearly:
Amount = P
1
+(R/2)
2
n

100
4
.

When interest is compounded Quarterly:
Amount = P
1
+(R/4)
4
n

100
5
.

When interest is compounded Annually but time is in fraction, say 3 years.
Amount = P
1
+3x
1
+
100

100
6
.

When Rates are different for different years
, say R
1
%, R
2
%, R
3
% for
1
st
, 2
nd
and 3
rd
year respectively
.
Then, Amount = P
1
+
1

1
+
2

1
+
3

.

100

100

100
7
.

P
resent worth of Rs. x due n years hence is given by:
Present Worth =
x

.

1
+
100

1.
A bank offers 5% compound interest calculated on half-yearly basis
.
A customer deposits Rs
.

1
6
00
each on
1
st
January and
1
st
July of a year
.
At the end of the year, the amount he wouldhave gained by way of interest is:A
.

Rs
.

1
2
0
B
.

Rs
.

1
2
1
C
.

Rs
.

1
22D
.

Rs
.

1
23
Option
B

Explanation:
Amount= Rs
.

1
6
00
x
1
+52+
1
6
00
x
1
+52 x
100
2 x
100
= Rs
.

1
6
00
x4
1
x4
1
+
1
6
00
x4
1
4
0
4
0
4
0
= Rs
.

1
6
00
x4
1
4
1
+
1
4
0
4
0
= Rs
.

1
6
00
x 4
1
x 8
1
4
0
x 4
0
= Rs
.
332
1.
C
.I.
= Rs
.
(332
1
- 32
00
) = Rs
.

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

1.
The sum (in Rs
.
) is:A
.

625B
.

63
0
C
.

64
0
D
.

65
0

Option
A

Explanation:
Let the sum be Rs
.

x
.
Then,C
.I.
=
1
+42-
x
=676-
x
=5
1

.

100
625 625S
.I.
=x 4 x 2=2
x

.

100
255
1
x
- 2
x
=
1

625 25
x
= 625
.
3
.
There is 6
0
% increase in an amount in 6 years at simple interest
.
What will be the compoundinterest of Rs
.

1
2,
000
after 3 years at the same rate?A
.

Rs
.
2
1
6
0
B
.

Rs
.
3
1
2
0
C
.

Rs
.
3972D
.

Rs
.
624
0
E
.
None of these
Option
C

Explanation:
Let P = Rs
.

100.
Then, S
.I.
Rs
.
6
0
and T = 6 years
.
R =
100
x 6
0
=
10
% p
.
a
.

100
x 6 Now, P = Rs
.

1
2
000.
T = 3 years and R =
10
% p
.
a
.
C
.I.
= Rs
.

1
2
000
x
1
+
10
3-
1

100
= Rs
.

1
2
000
x33
1

1000
= 3972
.
4
.
What is the difference between the compound interests on Rs
.
5
000
for
1
years at 4% per annum compounded yearly and half-yearly?A
.

Rs
.
2
.0
4B
.

Rs
.
3
.0
6C
.

Rs
.
4
.
8
0
D
.

Rs
.
8
.
3
0

Option
A

Explanation:
C
.I.
when interestcompounded yearly= Rs
.
5
000
x
1
+4x
1
+x 4
100

100
= Rs
.
5
000
x26x5
1
25 5
0
= Rs
.
53
0
4
.