Simple/Compound Interest Concept, Tricks & Model Questions

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 Simple/Compound Interest Concept, Tricks & Model Questions

Concept of Simple & Compound Interest

If you have a savings account in a bank, you must be familiar with the concept of
interest. You deposit money in a bank and the bank after a certain period of
holding the money gives you the interest. Similarly, when a person X borrows
some money from Y, X has to return the money (with some additional money) to
Y. This additional money is called interest and the money which is borrowed is
called Principal or Sum. Amount is the Principal and Interest together and the
period for which X has borrowed the money is called Time. The Rate of Interest
is the amount paid every year on Rs 100 as interest.

When the interest on a sum borrowed for a certain period is reckoned uniformly,
the interest is called simple interest. The formula of Simple Interest is below:

SI = (P*R*T)/100

P + SI = A

Where SI = Simple Interest, P = Principle, R = Rate of Interest, T = Time & A =

Amount

Now that you are aware of the concept of Simple Interest, let’s have a look at
some quick formulae:

Simple Interest Tricks

• If the sum becomes S1 in T years and S2 in T + 1 years, the below formulae
will apply
I = S2 – S1

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• If Principal is given in 2 parts, 1st part is given for R1 for T1 years and 2nd
part is given for R2 for T2 years and their interests are same, the part 1
amount is
Part 1 Amount = (P*T2*R2)/[(T1*R1)+(T2*R2)]
• If the rate of interest is R1% per annum for the first T1 years, R2% per
annum for the next T2 years and R3% per annum for the next years beyond
the first (T1 + T2) years. If the interest obtained in T3 years is Rs I.
P = (I * 100) / [ (R1*T1)+( R2*T2 ) + ( R3*(T3-T2-T1 ) ]
• If a sum of money becomes X times in T years at simple interest, the rate of
interest R will be
R = 100(X-1)/T
• If P is split into two parts and simple interest is I. 1st part is given for R1 for
T1 years and 2nd part is given for R2 for T2 years, the formula for the 1st
part amount is
1st part amount = [(I*100)-(P*T2*R2)]/[(T1*R1)-(T2*R2)]
• In case R1 falls to R2 and income is diminished by D, the formula of
principal will be
P = (D*100)/(R1-R2)
• If the sum becomes S1 in T1 years and S2 in T2 years, the rate of interest
will be
Rate of Interest =[(S2-S1)*100]/[[(T2-T1)*S1-T1*(S2-S1)]*T1]

Compound Interest Tricks

Please note the below legends used in the formulae & tricks:

A = future value

P = principal amount (initial investment)

r = annual nominal interest rate

n = number of times the interest is compounded per year

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 Simple/Compound Interest Concept, Tricks & Model Questions
t = number of years for which the money is borrowed

• A sum of money placed at compound interest becomes x time in ‘a’ years

and y times in ‘b’ years. These two sums can be related by the following
formula: (x)^(1/a) = (y)^(1/b)
• If an amount of money grows up to Rs x in t years and up to Rs y in (t+1)
years on compound interest, then R% = [(y-x)/x]*100
• A sum at a rate of interest compounded yearly becomes Rs. A1 in n years
and Rs. A2 in (n + 1) years, then P = A1(A1/A2)^n
• If a certain sum becomes x times of itself in t years, the rate of compound
interest will be equal to r = 100[(x)^(1/t) - 1]
• If the compound interest on a certain sum for 2 years is CI and simple
interest for two years is SI, then rate of interest per annum is r% = 2[(CI-
SI)SI]*100

Simple/ Compound Interest Model Questions for Practice

1. A certain sum of money invested at 20% per annum for 2 years compounded
annually, but if interest would have been compounded half yearly on the same
amount, then Rs. 241 more interest would have been received. Find the sum of
money invested.

a. Rs. 10000

b. Rs. 8000

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 Simple/Compound Interest Concept, Tricks & Model Questions
c. Rs. 12000

d. Rs. 7500

e. Rs. 10500

Answer: a

Solution:

Let the certain amount of money invested be Rs.‘P’.

When interest is compounded yearly,

So, CI = P(1 + 20/100)2 – P = P[(1 + 20/100) 2 – 1] = P(1.44 – 1) = 0.44 × P

When interest is compounded half yearly,

And, CI = P(1 + 10/100) 4 – P = P[(1.1) 4 – 1] = P(1.4641 – 1) = 0.4641 × P

According to question, 0.4641×P – 0.44×P = 241

0.0241×P = 241

P = 241/0.0241 = 10000

Therefore, the certain amount of money invested is Rs. 10000.

Hence, option a.

2. The difference between compound interest and simple interest at rate of 8%

per annum for 2 years is Rs. 96. Find the simple interest obtained on same
amount for a period of 2 years at rate of 10% per annum.

a. Rs. 2000

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 Simple/Compound Interest Concept, Tricks & Model Questions
b. Rs. 3200

c. Rs. 3500

d. Rs. 3000

e. Rs. 2500

Answer: d

Solution:

Let, the amount be Rs. P.

P[(1 + 8/100)2 – 1] – P × 8% × 2 = 96

P × 0.1664 – P × 0.16 = 96

P × 0.0064 = 96

P = 96 ÷ 0.0064 = Rs. 15000

Therefore, required interest = 15000 × 10% × 2 = Rs. 3000

Hence, option d.

3. A man deposited Rs. ‘x + 600’ at 12% per annum simple interest and earned
Rs. 528 as interest after 2 years. Find the interest earned by him if he deposited
Rs. 2x at 10% per annum for 2 years at compound interest.

a. Rs. 620

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 Simple/Compound Interest Concept, Tricks & Model Questions
b. Rs. 636

c. Rs. 650

d. Rs. 672

e. Rs. 612

Answer: d

Solution:

So, {(x + 600) × 0.12 × 2 = 528

0.24x + 144 = 528

x = 384/0.24 = 1600

So, required interest earned = 2 × 1600 × 0.21 = Rs. 672

Hence, option d.

4. A man invested some amount which becomes Rs. 5000 in 5 years and Rs.
5600 in 8 years at certain rate of simple interest. Find the rate of interest (p.a.)
at which the amount is invested.

a. 5% per annum

b. 15% per annum

c. 10% per annum

d. 20% per annum

e. 12% per annum

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 Simple/Compound Interest Concept, Tricks & Model Questions
Answer: a

Solution:

Let, amount invested be Rs. P.

According to question,

P + SI (for 5 years) = 5000

Also, P + SI (for 8 years) = 5600

Therefore, SI for 3 years = 5600 – 5000 = Rs. 600

SI for 1 years = 600/3 = Rs. 200

So, amount invested = 5000 – 200 × 5 = Rs. 4000

Therefore, rate of interest = (200/4000) × 100 = 5% per annum

Hence, option a.

5. Vishal invested Rs. 960 in two schemes A and B in the respective ratio of 5:3.
Scheme A and B are offering simple interest at the rate of 8% per annum and
10% per annum, respectively. Find the interest obtained after 2 years from
scheme A.

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a. Rs. 74

b. Rs. 82

c. Rs. 96

d. Rs. 104

e. Rs. 90

Answer: c

Solution:

Amount invested in scheme A = (5/8) × 960 = Rs. 600

Interest earned from scheme A = 600 × 8% × 2 = Rs. 96

Hence, option c.

6. Sumit earned an interest of Rs. 774 on principal amount of Rs. 2400 at some
rate of compound interest in 2 years. How much more/less interest would he
have earned on Rs. 2800 at the same rate of simple interest for the same
duration?

a. Rs. 80

b. Rs. 76

c. Rs. 62

d. Rs. 66

e. Rs. 70

Answer: d

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Solution:

Let, rate of interest be ‘r’% per annum

So, 774 = 2400 × {(1 + r/100)2 – 1}

129/400 = {(1 + r/100)2 – 1}

529/400 = (1 + r/100)2

(23/20)2 = (1 + r/100)2

23/20 = 1 + r/100

3/20 = r/100, r = 15

So, simple interest earned = 2800 × 0.15 × 2 = Rs. 840

Required amount = 840 – 774 = Rs. 66

Hence, option d.

7. In 8 years, a sum of money earns an interest equal to twice the sum invested
at simple interest. In how many years the sum of money becomes 800% of itself
at the same rate of simple interest?

a. 26 years

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b. 32 years

c. 30 years

d. 24 years

e. 28 years

Answer: e

Solution:

Rate of interest = 200/8 = 25%

If the sum of money amount to 800% of itself, this means 700% of interest is
earned.

So the time taken to earn 700% interest = 700/25 = 28 years

Hence, option e.

8. A man deposited 30% of his salary to a bank which offers compound interest
at the rate of 10% p.a. If the interest earned by him from the bank after 2 years
is Rs. 3780, find the monthly expenditure of the man which is 52% of his monthly
salary.

a. Rs. 31200

b. Rs. 32400

c. Rs. 28400

d. Rs. 26200

e. Rs. 34400

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 Simple/Compound Interest Concept, Tricks & Model Questions
Answer: a

Solution:

Let the amount of money deposited in the bank be Rs. ‘x’.

So, x × [(1.1)2 – 1] = 3780

0.21x = 3780, x = 18000

So, monthly income of man = 18000/0.3 = Rs. 60000

Required monthly expenditure of man = 52% of 60000 = Rs. 31200

Hence, option a.

9. A man deposited Rs. 8000 at 10% compound interest, compounded annually

while Rs. 7500 at 13% simple interest per annum. What will be the difference
between the compound interest and the simple interest earned by him after 3
years?

a. Rs. 272

b. Rs. 282

c. Rs. 277

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d. Rs. 290

e. Rs. 240

Answer: c

Solution:

Compound interest earned by the man in 3 years = 8000 × {(1 + 10/100) 3 – 1)}
= 8000 × 0.331 = Rs. 2648

Simple interest earned by the man in 3 years = 7500 × 0.13 × 3 = Rs. 2925

Required difference = 2925 – 2648 = Rs. 277

Hence, option c.

10. Vinit invested Rs. (x + 200) at 12% simple interest per annum for 4 years
and Rs. (x + 600) at 9% simple interest per annum for 3 years. If the difference
between the interest obtained by both was Rs. 270, then find the average of the
two amounts invested by Vinit?

a. Rs. 3200

b. Rs. 2000

c. Rs. 3000

d. Rs. 2500

e. Rs. 3800

Answer: b

Solution:

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 Simple/Compound Interest Concept, Tricks & Model Questions
According to question,

(x + 200) × 12 × 4 – (x + 600) × 9 × 3 = 270 × 100

48x + 9600 – 27x – 16200 = 27000

21x = 33600

x = 1600

So, amounts invested by Vinit were Rs. 1800 and Rs. 2200.

Therefore, required average = (1800 + 2200)/2 = Rs. 2000

Hence, option b.

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