Compound Interest:

Basic formula:

Amount= Principal ( 1 + r/100)^t

Where, r = rate of Interest and t = time period.

Example:

What would the amount received by A lending Rs 100 @ 10% C.I for 2 yrs.

Simply, A = 100( 1 + 10/100)^2 - A = 100(1+.1)^2 - A = 100( 1.1)^2 = 100 * 1.21 = 121

From here, we can rewrite the formula as A = P ( 1 + r)^t [ remember here, r will be the decimal
value instead of percentage form]

Now, we can use this formula for calculation when the t is small, say 2 or 3yrs. But if the
time period is big, we need to introduce the concept of log.
Now, a basic function of log is that, when we change an equation into log form, some
functions are important to remember for compound interest chapter. It is
Say, an equation x= (y)^z. When we introduce log, this equation will be rewritten as
LogX = zlog y
a= b*c
Loga = log b + log c
Likewise, if the equation is x = y * ( 1 + .05)^10
This can be rewritten as log x = log Y + 10 log ( 1.05) [ multiplication will become
addition,
likewise a division function become
substruction]

So, our compound interest formula [ A = P * ( 1 +r)^t] can be rewritten as

Log A = Log P + tLog ( 1+ r)

 Find the compound interest on Rs 1000 for 4yrs @ 5 % p.a

Sol: A = 1000 * ( 1 + .05)^4

Log a = log 1000 + 4log (1.05)

Log a = 3 + 4log ( 1.05) = 3+ 4( .02118)

.
Log a = 3 + .0848 = 3.0848 a = antilog 3.0848 = 1215.62 – 1000 = 215.62
  What principal will amount to Rs 720.325 in 4yrs @ 3%pa CI?

Sol: A = 720.325

A = P( 1 + r)^t

720.325 = p( 1+ .03)^4

Log 720.325 = log p + 4log (1.03)

2.8575 = log p + .0513

Logp + .0513 = 2.8575

Log p = 2.8575 - .0513 = 2.8062

P = anti 2.8062 = 640.02

 In what time will a sum of money be double itself at 5% CI.

SOL: here suppose p is the principle, amount = a , and we have r = .05

P *( 1.05)^t = 2P

(1.05)^t = 2P/P = (1.05)^t = 2

TLog( 1.05) = log 2

T = log2/ log (1.05)

T= .3010/ .0212 = 14.198 or 14.2 yrs

 Find the number of years in which a sum of money will triple itself @ 4% CI.

Sol: P= 100, A = 300

A = P ( 1 + r)^t

3P= P( 1+r)^T

 The difference between SI AND CI on a sum of money put out for 5 yrs at 3% was 46.8. Find
the sum.
Sol: p = 100, r = .03, t = 5yrs

A = p(1.03)^5

Log a = log 100 + 5log (1.03) = 2 + 5(.0128) = 2.064

A = antilog 2.064 = 115.87

Interest we are receiving = 115.87- 100 = 15.87

Si for 5yrs for 3% interest rate = 100 * 5 * 3/100 = 15

Difference of CI AND SI = 15.87- 15 = .87

DIFFERENCE PRINCIPLE

.87 100

46.8 X

X = 100 * 46.8/.87

= 100*53.79= Rs 5379.

 S. Sen borrow Rs 6000 from the money lender but could not repay the loan. The money
lender wants Rs 7500 from him. What rate of interest the money lender is demanding.

Sol:

 A man left Rs 18000 with the direction that it should be divided in such a way that his son
aged 9, 12and 15 yrs should receive the same amount when they reach the age of 25. If the
rate of interest is 7/2 % p.a What should each son receive when he is 25yrs old .

Sol: