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Interest Practice Problems

# Interest Practice Problems

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Interest Calculation
Interest Calculation

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11/10/2015

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# SIMPLE INTEREST I=Ptr I = Interest Rate P = Principal (the initial amount borrowed or deposited) t = Number of years/months/days

the amount is deposited or borrowed for r = Annual rate of interest (percentage)

Examples

1 Calculate the amount of interest on Rs.8700.00 when earning 3.25% per annum for three years. Answer 848.25

2 Calculate the amount of interest on Rs.4500.00 when earning 9.5% per annum for six years. Answer 2565

3 Calculate the interest when Rs. 6300 is borrowed from March 15th, 2004 until January 20th 2005 at a rate of 8%. HINT:you will not count the day the money is borrowed or the day the money is returned Answer 428.05

4 What's the Interest on Rs.890.00 at 12.5% for 261 Days? HINT:261/365 days is the calculation for the t - time. Answer 79.55

5 What Annual Rate of Interest Is needed for Rs.2100.00 to earn Rs.122.50 in 14 Mths? HINT:use 14/12 for time and move the 12 to the numerator in the formula r=I/Pt Answer 5%

6 What Sum of Money Can you Invest for 300 Days at 5.5% to Earn Rs.93.80? Answer 2075

7 What amount of principal will earn interest of Rs.175.50 at 6.5% in 8 months? Answer 4050 8 How much money do I need (principal) to get Rs.18.20 at 3.25% in 8 months? Answer Rs. 840 9 How many months will it take if I invest Rs.5000.00 at 5% to make Rs.136.48? Answer 0.54592 years or 6.55 months 10 How many years will it take for Rs.745.00 to make Rs.178.80 at 8%? Answer 3 Years

P=I/tr t=I/Pr r=I/Pt

m for three years.

for six years.

anuary 20th 2005 at a rate of 8%.

4 Mths?

8 months?

Rs.136.48?

?

8700. 6300 is borrowed from March 15th.00 to earn Rs. So.50 in 14 Mths? HINT:use 14/12 for time and move the 12 to the numerator in the formula r=I/Pt Answer r = I / Pn r = 122.125 * 261/365 I = 79.Solutions 1 Calculate the amount of interest on Rs.25% per annum for three years. It comes to 310 days.25 2 Calculate the amount of interest on Rs.8 / (. I=Pnr I = 6300 * .055 * 300/365) P = 2075 .93.0325 * 3 I = 848.122. n would be.80? Answer P=I/rn P = 93.5% to Earn Rs.06 4 What's the Interest on Rs.890. HINT:You will not count the day the money is borrowed or the day the money is returned. 310/365.5% for 261 Days? HINT:261/365 days is the calculation for t .08 * 310/365 I = 428.time.095 * 6 I = 2565 3 Calculate the interest when Rs.00 at 12. Answer First calculate the total number of days for which the money is borrowed.2100. Answer I=Pnr I = 890 * . Answer I=Pnr I = 8700 * . here.4500.5 / (2100 * 14/12) r = 5% 6 What Sum of Money Can you Invest for 300 Days at 5.00 when earning 3. excluding the day of borrowing and the day of return. Answer I=Pnr I = 4500 * .00 when earning 9.5% per annum for six years.Simple Interest .55 5 What Annual Rate of Interest Is needed for Rs. 2004 until January 20th 2005 at a rate of 8%.

20 at 3.5% in 8 months? Answer P=I/rn P = 175.08) n = 3 years .178.8 / (745 * .745.50 at 6.05) n = .48 / (5000*.0325 * 8/12) P = 840 9 How many months will it take if I invest Rs.18.00 P = 18.55 months 10 How many years will it take for Rs.00 to make Rs.5000.2 / (.54592 years or 6.175.7 What amount of principal will earn interest of Rs.136.48? Answer n=I/Pr n = 136.25% in 8 months? Answer P=I/rn \$840.00 at 5% to make Rs.80 at 8%? Answer n=I/Pr n = 178.065 * 8/12) P = 4050 8 How much money do I need (principal) to get Rs.5 / (.

r three years. ary 20th 2005 at a rate of 8%. . excluding the day of borrowing 365. d. six years.

.

COMPOUND INTEREST Amount = Principal + Interest A = P(1 + r)^n A = the amount of money accumulated after n years.5000. Answer 10609 4 A third bank promises a similar interest rate with but the rate being compounded quarterly.44 2 A sum of Rs. P = Principal (the initial amount borrowed or deposited) n = number of years the amount is deposited or borrowed for r = annual rate of interest (percentage) If Interest is paid more frequently: Annually Quarterly Monthly P × (1 + r)^1 = (annual compounding) P (1 + r/4)^4 = (quarterly compounding) P (1 + r/12)^12 = (monthly compounding) P = the principal (current worth) A = the initial amount on deposit r = the interest rate (expressed as n = the number of times per year t = the number of years invested Formula: A = P (1 + r/n)^nt A = the amount of money accumulated after n years.44 and I = 1802. 10000 is deposited in a bank which provides 6% interest rate. P = Principal (the initial amount borrowed or deposited) r = annual rate of interest (percentage) n = the number of times per year that interest is compounded t = number of years the amount is deposited or borrowed for If Interest is paid every second ('n' approaches infinity) A = P e^(rt) e is approximately 2. . Answer A = 6802. Answer 10600 3 Another bank promises the same interest rate with the interest being compounded semi-annually.5000.00 is borrowed to purchase a car. Find out the amount that can be earned by t investment with the interest being calculated annually. Find the amount that c be earned through this bank. Find out how much the car will cost if an amou Rs. Find the amount that can be earned through this bank. including interest.71828 Examples 1 An amount of Rs.00 is borrowed at an interest rate of 8% for 4 years. including interest.

Find the amount that can be earned at the end of one year if the sa money is lent to this businessman.31 8 What would happen if the interest rate is compounded every moment? Answer 10618. Answer 10616. Answer 10618 7 Find the amount that can be earned if the same amount at the same interest rate is compounded daily.64 5 A financial Institution promises a similar interest rate with a monthly compounding of interest. Find the amount that can b earned. He is in dire need of mo and commits to pay an interest compounded weekly.78 6 A businessman needs money and asks for a loan of a similar amount with a similar interest rate.Answer 10613.37 . Answer 10618.

P = the principal (current worth) A = the initial amount on deposit r = the interest rate (expressed as a fraction: ex: 6% = .06) n = the number of times per year that interest is compounded t = the number of years invested er n years. Find the amount that can be . Find the amount that can mpounded quarterly.er n years. out how much the car will cost if an amount of rate. Find out the amount that can be earned by this ompounded semi-annually. including interest. including interest.

He is in dire need of money that can be earned at the end of one year if the same terest rate is compounded daily. Find the amount that can be with a similar interest rate.mpounding of interest. .

Answer A = P (1 + r/n)^nt A = 10000*(1+.06)^1 A =10600 3 Another bank promises the same interest rate with the interest being compounded semi-annually.06/2)^(2*1) A = 10609 4 A third bank promises a similar interest rate with but the rate being compounded quarterly.06/12)^(12*1) A = 10616.Principal I = 6802.500 borrowed at an interest rate of 8% for 4 years under compounding policy.445 Interest = Amount . Find the amount be earned through this bank at the end of one year . Answer A = P(1 + r)^n A =10000*(1. Answer A = P (1 + r/n)^nt A = 10000*(1+.445 . Find the amount that can earned through this bank at the end of one year . Answer A = P (1 + r/n)^nt A = 10000*(1+.08)^4 A = 6802. Answer A = P(1 + r)^n A =5000*(1.06/4)^(4*1) A = 10613. Find out how much the car will cost if an amount of Rs.78 .445 2 A sum of Rs.Solutions 1 An amount of Rs.5000 I = 1802. Find out the amount that can be earned investment at the end of one year with the interest being calculated annually.00 is borrowed to purchase a car.64 5 A financial Institution promises a similar interest rate with a monthly compounding of interest.5000. 10000 is deposited in a bank which provides 6% interest rate. Find the amount that c earned at the end of one year .Compound Interest .

6 A businessman needs money and asks for a loan of a similar amount with a similar interest rate. Answer A = P (1 + r/n)^nt A = 10000*(1+. Find the amount that can be earned at the end of one year if th money is lent to this businessman.06*1) A = 10618. He is in dire need and commits to pay an interest compounded weekly. Answer A = P (1 + r/n)^nt A = 10000*(1+.31 A = 10618.31 8 What would happen at the end of one year if the interest rate is compounded every moment? Answer A = P e^(rt) A = 10000*2.71828^(.37 .06/52)^(52*1) A = 10618 7 Find the amount that can be earned at the end of one year if the same amount at the same interest rate is compou daily.06/365)^(365*1) 10618.

Find the amount that can be ng of interest.5000.e car will cost if an amount of Rs. Find the amount that can be . Find the amount that can d quarterly.00 is d out the amount that can be earned by this ded semi-annually.

He is in dire need of money be earned at the end of one year if the same at the same interest rate is compounded very moment? .milar interest rate.

What is the better way to invest Rs.100 for ten years: at 5% simple interest.10) did you originally invest? Principal = 152 3. and 6% interest compounded monthly? SI CI CI compounded quarterly compounded monthly 300 347 349 .1000 for five years at 6% simple interest. What is the difference between investing Rs.8% interest compounded 4.Additional Problems 1. 6% interest comp quarterly.6% interest compounded annually? Does your answer change if the investment lasts 100 years? SI for 10 years CI for 10 years compounded monthly compounded annually 50 65 57 500 14588 8878 N Y N N Y N SI for 100 years CI for 100 years compounded monthly compounded annually 2. If you invest some money at 8% annual compound interest for five years and end up with approximatel how much (to the nearest Rs. 4.

223.t. or ment lasts 100 years? nd end up with approximately Rs.8% interest compounded monthly. 6% interest compounded . ple interest. 4.

80. pays an initial lumpsum of Rs.33 percent 6 Assume that in the above case the borrower defaults in the payment during the fourth year and pays regularly afterwards Thus.1 ] / r } Examples 1 If a person wants to buy a house after 5 years when it is expected to cost Rs.35000.000 and receives an EMI of Rs.788 Eff.25%.n = [(1+r) ^ n – 1 ] / [r(1+r) ^ n ] A = FVAn / { [ (( 1+r)^n) .EMI Problems Equated Monthly Instalments Present Value Interest of a Future Annuity at rate r and n period PVIFA r.665 3 What is the effective interest rate in the above case? Answer .500 annually for 6 years. 20 lakhs.788 7 What is the effective interest rate in the above case? Answer 7.000 for a musical system at a monthly interest of 1. 2.10.14 percent 8 Consider a case wherein a purhaser of a Refrigerator. costing Rs. Caculate the EMI.962251 percent per month . Also find.rate 0.5. Answer 7220. What is the interest rate that the pers earns on this lending? Answer 13 percent 5 What is the effective interest rate in the above case? Answer 8.5 2 Shyam borrows Rs.000 during the purchase. what is the effective rate of interest that the vendor gets at the end of the year? Answer EMI = 2836. What would be the interest rate in this case? Answer 16 percent 2836. He agrees to pay the rest of the money in 12 equal monthly instalments. payable at the end of each month. the payment goes beyond the agreed due date. at an interest rate of 2 percent per m Calculate the EMI. The loan is to be repaid in 12 equal mo instalments. upto the fifth year.Int.69 percent 4 If a person lends Rs. how much should the person sav anually if the savings earn a compound return of 12 percent? Answer 314819.

at an interest rate of 2 percent per month. 20 lakhs.000 during the instalments.EMI = N / [(1+r) ^ n – 1 ] / [r(1+r) ^ n ] ost Rs. ar. The loan is to be repaid in 12 equal monthly y for 6 years. he vendor gets at the end of the year? .5. What would be the interest rate in this case? 00. how much should the person save of 1. pays an initial lumpsum of Rs.25%. What is the interest rate that the person during the fourth year and pays regularly afterwards.

46 2 EMI = N / [(1+r) ^ n – 1 ] / [r(1+r) ^ n ] = = 80000/ { [ (1. That is at 13 % Therefore..3 % of the total amount lent. 6648. I. (7220. . 6648/80000 = 8. 50 / 6 .1 ] / r } = = 2000000 / { [ (1.12} 314819.665 PVIFA r. As the value with interest 16% is nearer to 4. 6 = 10000/2500 = 4 Find in the table the column corresponding to the PVIFA at 6 years with an approximate value of 4.EMI . the effective annual interest earned is. 8.665*12)-80000 = 6648 This is 8. I. 6 PVIFA r. 5000/10000 = 50 % Hence.3 percent Hence. the effective monthly interest earned is.3/12 . ..e.12^5) . 4 PVIFA r.0125)^12 ] } 7220.n = [(1+r) ^ n – 1 ] / [r(1+r) ^ n ] 3 The total interest earned during the period of 12 months is Rs. we can assume the interest rate to be around 16%.0125*(1. 5000. 7 = 10000/2500 = 4 Find in the table the column corresponding to the PVIFA at 7 years with an approximate value of 4. That is between 16 and 17 percent.1] / 0.33 percent.e. (2500*6)-10000 = 5000 This is 50 % of the total amount lent.Solutions 1 A = FVAn / { [ (( 1+r)^n) . 5 The total interest earned during the period of 6 years is Rs. 8.69 percent.0125)^12-1 ] / [ 0. the effective interest rate the lender gets is 13 %.

5 % of the total amount lent.14 percent.2837. (2500*6)-10000 = 5000 This is 50 % of the total amount lent. The total interest amount paid during the period is.456 4041/35000 = 11.7879 The EMI therefore. 50 / 7 .e. 5000. EMI = 2836. 11.Therefore..30000.5% This is 11. the effective interest rate the lender gets is 16 %. 7 The total interest earned during the period of 7 years is Rs. the effective annual interest earned is. 0.e. the effective monthly interest earned is. i.96 % . Rs. 8 The actual amount due is Rs. is.788*12)-30000 = 4041. Hence. Hence.5 / 12 . ..958333 (2836. I. 7.

oximate value of 4.= [(1+r) ^ n – 1 ] / [r(1+r) ^ n ] oximate value of 4. we can assume the interest rate . .

5 / 12 .d is.96 % . i.e.e. 7.. ned is. 11. . 50 / 7 ..14 percent. I.

you a loan payments based on a Rs.000 loan. Lender B also offers a 7% interest rate.2.000 . will charge you Rs.305%.000 in fees for the loan.100.000). In this instance the Annual Percentage Rate (APR) would be 7.000 is Rs.000 . Since you would have to pay Rs. you are really only increasing your cash position by Rs. and does not charge any fees.000.000 Rs.305%.2.3. Since 3% of Rs. but would still have to repay a Rs.000 (100.98.202 than an APR of 7.000). Lender A however.000.100.3.202%. In this situation Lender A has the better deal since an APR of 7. in this case 3%.97.000 loan.000 (100.000 for a 30-year mortgage loan and Lender A is charging you an in 7%. let's say you borrow Rs.2. . you would only cash position by Rs. so your 'effective interest rate' (Annual Percentage Rate) will be hi stated rate on your loan.APR Annual Percentage Rate For example.100. In this case you Percentage Rate (APR) would be 7. However. Instead Lender B would require you to p point is one percent of the loan amount.100.100.

Instead Lender B would require you to pay 3 points (a % of Rs.100.2.3.202% is lower .100. fees.2. you are still making erest rate' (Annual Percentage Rate) will be higher than the Rate (APR) would be 7.000 (100.98.000 in order to get Rs.202%. However. you would only increase your ve to repay a Rs.tgage loan and Lender A is charging you an interest rate of e loan.000.000 is Rs. Since you would have to pay Rs.000 .000). In this case your Annual er A has the better deal since an APR of 7.000 loan.

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