Simple & Compound Interest

The additional money which is

paid for the use of a certain

amount is called Interest.
The amount borrowed is called
the Principal.
The sum of Interest and Principal
is called the Amount.
Simple Interest
If the interest is calculated on
same amount of money, then it is
called the simple interest (S.I).
If P is the principal, R is the rate
of interest, T is time and S.I is the
simple interest, then
PTR
Simple Interest =
100
TR
Amount = P 1+
100
Note: Simple Interest is always calculated on principal. Therefore
simple interest is equal for every

Shortcut: For one year, rate of

interest is 12% and for 3 years
it is 12 3 = 36%.
The amount will become 136%.
If 100% money = 54600,
136
136% money = 54600
100
= Rs.74,256
Compound Interest
Money is said to be lent at compound interest (C.I.), if the interest
is not paid as soon as falls due,
but it is added to the Principal after
a fixed period, so that the amount
at the end of period becomes the
principal for the next period.
If A is the amount, C.I. is the compound interest, P is the principal,
R is the rate, and T is the time,
then

R
A = P 1+
100

108
108
16500 =19245.60
100
100
C.I = 19245.60 < 16500
= Rs.2,745.60
Note:
If the interest is paid half yearly,
time will be doubled and the rate
will be halved. Because for example, interest for one and half year
at 4% rate payable half yearly will
be the same as the interest
payable for three years at 2%.
Similarly, if the interest is paid
quarterly, time becomes 4 times
and the rate becomes one-fourth
Difference between S.I. and C.I.

TR
Sol: Amount = P 1+
100

3 12
54600 1 +
100

136
54600 = Rs.74,256
100

47
108800 = P 1 +
100

8
C.I = 16500 1 + < 16500
100
108
108
16500 <16500
100
100
19245.60 < 16500 = Rs.2745.60
Short cut:
Amount = 108% of 108% of 16500

EXERCISE
1. What will be the simple interest obtained on an
amount of Rs.24,600 at the rate of 4% after 6
years?
A) Rs.6,208
B) Rs.5,840.80
C) Rs.4,850
D) Rs.5,904 E) None of these
2. What would be the compound interest obtained
on an amount of Rs.7640 at the rate of 15
p.c.p.a. after two years?
(RBI Assts. - 2012)
A) Rs.2,634.90 B) Rs.2,643.90 C) Rs.2,364.90
D) Rs.2,463.90 E) None of these
3. The simple interest accrued on an amount of
Rs.95,300 at the end of 6 years is Rs.28,590.
What is the rate of interest p.c.p.a.?
A) 9
B) 7 C) 5 D) 11 E) None of these
4. Kumar deposits an amount of Rs.350000 to
obtain a simple interest at the rate of 15 p. c. p.
a. for 4 years. What total amount will he get at
the end of 4 years?
A) Rs.5,60,000
B) Rs.3,60,500
C) Rs.4,52,000
D) Rs.4,85,500
E) None of these
5. What is the compound interest accrued on an
amount of Rs.12,000, at the rate of 10 p.c.p.a. at
the end of 3 years?
A) Rs.4,809
B) Rs.3,972

(A) Rs.39,650 (B) Rs.325

(C) Rs.313.75 (D) Rs.322.80
(E) None of these

<P

P R2
Sol: Difference =
100 2
125500 25
= Rs.313.75
10000
2. On what sum does the difference
between Simple and Compound

C) Rs.3,786
D) Rs.3,872
E) None of these
6. A man deposits Rs.6800 in a bank at 5% annual
interest. After 6 months he withdraws Rs.4400
together with interest and after 6 months the
remaining money. How much does he get as
interest?
A) Rs.270 B) Rs.360
C) Rs.230 D) Rs. 380 E) None of these
7. On what sum does the difference between
Simple Interest and Compound Interest for 3
years at 5% rate be Rs.2,440?
A) Rs.1,20,000 B) Rs.2,40,000
C) Rs.1,80,000 D) Rs.3,20,000
E) None of these
8. A sum of money will become double in 3 years
at a certain rate of compound interest. In what
time will it become four times itself?
A) 4 years
B) 9 years
C) 5 years
D) 6 years
E) None of these

Answers
1) D
2) D

3) C
4) A

5) B
6) C

7) D
8) D

(Writer - Director, RACE Institute, Hyderabad)

TR

Sol: Amount = P 1 +
100

C.I = P 1+ < P
100
If R = 5% Difference =
Ex: What is the com61
P
pound
interest
8000
accrued on an
amount
of
If R = 10% Difference =
Rs.16,500, at the
31
P x
rate of 8 p. c. p. a.
1000
G.S.
Giridhar
at the end of 2
years?
Ex.1: What is the difference between
(A) Rs.2,745.60 (B) Rs.2,574.20
Simple
and
Compound
(C) Rs.2,986.50 (D) Rs.2,645.40
Interest for two years on
Rs.1,25,500 at 5% rate?
(E) None of these
R
Sol: C.I = P 1+
100

1. A sum of money will become Rs

108800 in 4 years at 7% per
annum simple interest. Find the
sum?
(A) Rs.85,000 (B) Rs.65,000
(C) Rs.50,000 (D) Rs.80,000
(E) None of these

Difference =
100 2
For 3 years:
(300 + R) P R2
Difference =
100 3

Numerical Ability

Some more models

For one year: There is no difference.

P R2

P 31
4030 =
1000
4030 1000
P = = Rs.130000
31

Interest and Compound Interest

can be calculated by using the
following formulae.

For 2 years:

rate of interest respectively. At the

end of year the interest earned is
Rs.16500. Find the sum invested
in each bank.
(A) Rs.1,50,000 (B) Rs.75,000
(C) Rs.1,25,000 (D) Rs.80,000
(E) None of these

P 31
Sol: Difference =
1000

Difference between Simple

Simple Interest is always...

period.
Ex. 1. What would be the simple
interest obtained on an
amount of Rs. 12,960 at the
rate of 4 p.c.p.a. after 5
years?
(A) Rs.2,416 (B) Rs.2,670
(C) Rs.2,574 (D) Rs.2,592
(E) None of these
Sol: Here P = 12,960, T = 5, R = 4
PTR
Simple Interest =
100
12960 5 4
= Rs.2,592
100
2. A man deposits an amount of Rs.
54600 at a simple interest rate of
12 p.c.p.a. for 3 years. What total
amount will he get at the end of
3 years ?
(A) Rs.19,656 (B) Rs.74,256
(C) Rs.72,148 (D) Rs.77,280
(E) None of these

Interest for 3 years at 10% rate will

be Rs.4,030?
(A) Rs.1,25,000 (B) Rs.1,32,500
(C) Rs.75,000 (D) Rs.1,30,000
(E) None of these

)
)

C.I = 10103.90 < 7640

= Rs.2,463.90
S.I 100
3. R =
PT
28590 100
R = = 5%
95300 6
4. Amount =

4 15
350000 1 + = 560000
100

( )

10 3
5. C.I =12000 1+ < 12000
100
Rs.3972
6. S.I on Rs.6800 for 6 months
1
6800 5
2
= = Rs.170
100
Remaining amount =
6800 < 4400 = Rs.2400

100
100

= 16500 = Rs.75,000
22

4. A sum of money amounts to

Rs.8960 in 3 years at simple interest. If the rate of interest is raised by
25%, the sum amounts to Rs.9200
during the same perod. Find the
sum and the rate of interest?
(A) 9%
(D) 6%

(B) 5% (C) 4%
(E) None of these

100

= Rs.85,000
2. In what time will Rs.13500 amount
to Rs.17,550 at 5% per annum?
(A) 8
(B) 3
(C) 5
(D) 9
(E) None of these
Solution: Simple interest =
Amount < Principal.
= 17550 < 13500 = Rs.4050
4050 100
Time = = 6 years
13500 5
3. Ravi invests two equal amounts in
two banks giving 10% and 12%

115
115
7640 = 10103.90
100
100

100

100% interest = 240 = 960,

100
100% money = 108800
128

2. Amount = 115% of 115% of 7640

x 10 x 12
+ = 16500

Sol: Rs.9200 < 8960 = Rs.240

25% of interest is Rs.240

100
P = 108800 = Rs.85000
128
Shortcut:
For one year, rate of interest is
7% and for 4 years it is 7 4 = 28%
The amount will become 128%.
If 128% money = 108800,

EXPLANATIONS

Sol: Let each amount be Rs.

25
which is interest for 3 years

Principal is Rs.8960 < 960

= Rs.8,000
960 100
Rate of Interest = = 4%
3 8000
5. Find the simple interest on
Rs.25,000 at 6% per annum from
March 3rd to May 15th in the same
year?
(A) Rs.150 (B) Rs.250
(C) Rs.500 (D) Rs.300
(E) None of these
Sol: Time from March 3rd to may
15th = 28 days of March + 30
days of April + 15 days of May
73
1
= 73 days = years = year
365
5
1
25000 6
5
S.I. = = Rs.300.
100
S.I on Rs.2400 at the rate of
1
5% for year =
2
1
2400 5
2
= Rs.60
100
Total interest =
170 + 60 = Rs.230

P x 61
7. D =
8000
P 61
2440 =
8000
P = Rs.3,20,000
8. Let the money be Rs.100.
It becomes Rs.200 in 3 years.
As this is compound interest, Rs.200
will be the principal.
Now it becomes Rs.400 in another 3
years.
Therefore money will become four
times in 3 + 3 = 6 years

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