Chapter 18

Compound Interest

P is deposited in bank for

When an amount certain rate of interest (r% p.a.) on the
a

that every year interest will be calculated and added to the principal. The way
interest in this fashion is called compounding. The interest thus accruedis
condition
ofcalculating
interest.
compound N
called
R
A-p[1+;100
P= Principal amount (initial)
where
R=Rate of per annum
interest
N=Duration of depositin years
A=Amount accrued at the end of theperiod
etc. Then the corresponding rate will
Aean also be denoted in terms of halfyearlquarter,
R R
be 4
2 given by
An article worth (P) at present RA, tyears hence is

A
P=
r
1+
100
?A, in n years and A,in (n + 1)
Asum ata rate of interestcompounded yearly becomes
years, then

r= 100(A, - Alo p.a. and P =A1|

Aj
instalments of x. If the rates of
to be paid back in n equal
A sum of loan of amountA is

nterest is r% per annum compounded annually, then

Ar
X=
100
100 1 - 100+r

193
 in n equnl nnnual instalmenta
be paid annually, then
isto
104 hence
yeare compoundedAr
due n annum
per
AnamountA is rh
of intereet
100+r
rate
100
cu
Short
(CI)for which interest is
Interest that was due to the calcula to 1001
equal
at Compound the interest r= 100
was deposited period
and and the amount so oh depostt Here,
that or a fixed
sum deposited till the term of obtainei
Money year
of each to the continues he
the end same isadded
The same process the initial princip al is called depost EXAMPLE
the and
paid and next period. final amount eight times
forthe the
principal between Solution
difference
andthe
(CI).
Interest

EST Important
Formulae
= t years and Rate
=r% p.a.
EXAMPLE
P. Time

Let the Principal= annually: in 2 years?

is compounded
I: When interest Solution
Case
Amount -P|1*100
half-yearly:
interest is compounded
Case II: When r 21

r/2 Or
Amount =P|1+ 100 200

compounded quarterly:
Case III: When interest is Or
4t
r/4
Amount
100 =P1 400

Case IV: When the rate of interest is r%, r% and r3% for lst year, 2nd year and 3rd

(b)To f
e
respectively, then
EXAMP
100
Solutio
(a)To find the rate:

EXAMPLE 1 At what rate i.e.

percentage compound interest does a:sum become nine

in 2 years?

Solution Let the sum bex and rate

be r% per annum,
then

9r=x1+ i.e.
100
Or

r 2
9=|1+ l.e.
Or 100

3=1+
 12

Compoud Interett 195

1f
the 100
r= 200%
Ir n certain sum becomes imes in t years, rate of compound interest r 5
cut:
Short
)l/M -1|
to 100l(m 1] = 100(3 - 1) = 200%
egual
tedat r=100f(9>)2-
is Here,

is
not 2 At what rate percentage (compound interest)will a sum of money become
the EXAMPLE in three
years?
ends eght
times
Rate% [(8)–1] = ×100
oound
Solution =[(8)- 1] ×100
=[2- 1]x 100 =100%
3 At what rate per cent compounded yearly will 80000amount to T 88200
EXAMPLE
in 2years?
We have
Solution

s00001 + 100
=88200
88200 441
100 80000 400

21
|1+100 20

= 100 =5%
20

To find time:
ear
(b)
R 390625 amount to 456976 at 4% compound interest?
YÀMPLE 4 In whattime will

Solution
Here A=P1+ 100
4
old Le. 390625|1 +100 =456976
456976
390625

26 456976
Le
25 390625

Le.
26 ) 26)4
25 25
t=4
The required time is 4 years.
 ride intereat
doubles itaelf in4
(herte atcompound
Aeum placed timesitself? per nnum
interest
KAMPLKA to eight rate of

it amount and r,
earell principal
IfPisthe =2P
Solution

The sum w
12 Short C
both sides,
=23 =8 ( times in
Cubing
1100 Ifsum
bec

12

=8P To find th
100
or
times = 12 years
to become the
sum eight itself
EXAMPLE
.Therequired time theSI?
4 years
Short cut: Pbecomes 2P in
years
2P becomes 4P in next 4 Solution
4 years
4P becomes 8P in next
Pbecomes 8P in4+ 4 + 4 12 years =

EXAMPLE 6 number of complete years in

Find the least
which a sum of money at20
double.
Compound interest will be more than
Solution We have,
SI
20 CI
> 2P
P|1+:100

Shor
By trial, A

.Therequired time is 4 years.

EXAMPLE 7 Find sun
sum of money at
A

4years. In
how many years will it compound interest amounts to four times itsel EXAMPL
be 16 times of
Solution Let the itself? interest is
sum be x
Solution
Then, 4 the intere

100
Or

4=|14
100
Int
Squaring,
Int
 6260
6) P

Compound Interest 197

be 16 timesin 8 years,
will
The
sum
If a sum becomes x imes in y years
at compound
cut: interest then it will be
Short years,
in ny 4 times in 4 years,
a mes
it will be (4)times in 2 x 4
becomes
=8 years.
Ifsum
CI given, and vice versa
SI, if the
is
thhe
Tofind
s If the CI on a certain sum for 2 years at 3% be 1015, what would be
KXAMPLE,
SI? 2
=1+8
the

lrupee
-1
Clon 100 100
Solution

609
10000
2x 3 6
SI on 1 rupee =R 100 100
P.a.
200
SI 6 10000
609 203
CI 100
200
of CI = 203
x 1015=1000
SI=200
203

xCompound Interest.

Short cut: Simple interest

-1
100|1 100

SI are given
Find sum and rate if CIand sum for 2 years is 408
and simple
on a certain
compound interest
EXAMPLE 9 The annum and the sum.
fin
Find the rate of interest per 2 years is
Interest is
400.
compound interest for
interestand
between the simple
Difference
Solution
interest.
the interest on the first year's
400
= =200
First year's SI 2

CI – SI=408–400 =78
Interest on 200for l year=*8
Interest on 100 for l year=R4
 ride
Cuatve 19%
Rate 400
100 x G000
100x / 4x2 Solution
by P
ie given
Principal
EXAMPL
fo
only) in CI and SI x 100 interest
cut: (for2yeare 2x Difference
Short = SI
Rate Solution
2x8 x 100 4% =

400 Thec
400×100 =5000
Sum = 4x2 then
the

EXAMP
Division of
Sum 3years
a

Y, so that the share of X

between X and
at the
5,204 years, compound end

EXAMPLE 10 Divide
Y at the
end of 9

the share of interestbe Solutio

may be equal to
years
7

at4%.

Solution We have 9
EXAMF
4 4 per ann
= (Share of Y at present) 1+
100
(Share of Xat present)1+ 100 Solutia
2
Share of X at present 4 26 676
-|1+ 100 25 625
Share of Y at present

Dividing5,204 in the ratio 676 :625. EXAM

676
Present share ofX= x 5204=2704 the co
676 +625
Soluti
625
ofY = =2500
Present share
676 +625 x 5204
or

When difference between SI and CI is given

Theorem: When the difference between the compound interest and simple EXAN
interest 0t
certain sum of money for 2 years at r% per annum isx,then the sum
is given by: annuL

Sum =(CI -SI)x 100x100 (100 2

Rate x Rate Solui
When the sum is given, difference in
S and CI is calculatedby
2
Difference = Sum x Wher
100
EXAMPLE 11 The
difference
on a certain between the intere
sum of money at5%o per compound interest and the Simple
annum for 2 years is 15. Find the sum.
 inl
d Eterest 199
100

otion 12 Find the differenee

between the compound
of 1500 at 10% per interest
frthe sum annum for yenrs. and the imple
KANPLE 2

tet
Dference = Sum xonl500 10 -t16
Ai0ference between Cl and SI on certain
Ifthe sum for
a
3 years at r% is x
Throrvms Difference x (100
be and if sumis given,differencewill P(300 +r)
will 300+r) be sum
thesum (100

the difference between CI and SI on

S 13 If a certain sum of money for
is 1220, find thesum.
5% per annumn
ALAMPLE
at
Sears Difference x (100 1220 (100
Sum =
= 160000.
of
r(300+r) 5(300 + 5)
Solution

Find the difference between CI and SI on 8000 for 3 years at 2.5%

14

EXAMPLE
r'(300 +r) 8000 x 2.5x 2.5(300 + 2.5)
perannum.

Solution
Difference
= Sum x
(100) 100 100 100 × ×
8x 25x25x 3025 121
=15.125
100 x 100 x 100
4% for 2 years 80. Find
on sum at per annum is

15 The simple interest

a

EXAMPLE the same sum for the same period.

interest on
compound
CIand SI x 100
the

x
2 Difference in

Solution
Rate = SI
Rate x SI 4 x 80 =1.6
Difference
in CI and SI= 2x100 2x100

CI =80+ 1.6 =81.6

for 2 ye arsat 10%
per
interest on a certain sum of money
compound same time.
EXAMPLE 16 The rate and for the
the simple interest at the same
atnum is 420. Find

rt x CI
Solution We have, SI=
-1
100

When t=2,
SI=
02r xCI
st

100| 1 + +100
2r-1
1002
 100
2xCI x Solutio
(+ 200r)

200 x CI
rlr+200)
200 x 10
x 420 -400
SI= 10x 210 SE
be
formulae may used
Subetituting. the above
is asked,
given
and SI
When CI
is
3
Note:
is asked for years
CI and SI
re lation
ship between
When rt xCI
SI=

EXAN
being
3r
X CI
3
Solui
-1

the simple interest on

a certain sum of money for 3 years
EXAMPLE 17 If at5%

the corresponding
compound interest.
?150, find
3
x CI
Solution SI = 3

10 o10-1 EXA
inte
3x5
Le. 150 = x CI
Sol
-1
100|1+ 100
Or
l50
CI = -1
15 100

= 1000 (21- 20)[21 +21(20) + 201

8000
441+420+400 1261
8 =157.62
EXAMPLE 18 An amount
3years on of
money grows 5321
compound interest. Find the rate
up to 4840in 2 years and upto
per cent.
int
omposd Intereet 201

We have,
CL 3rdyear
for 5324 -4840 -tA84
olutlon
484 x 100
Rate = -10%
4840
accrued on the amount
is theinterest principal 4840 at the end of 2nd yenr.)
484t
6e. IDiference of amount after n years and (n + 1)
Rate years) x 100
cut: Amount after n years
Short

case
n9
ln this
Rate = IDifference of amount after 2 years and3 years)x
Amount after 2years
100

(5324 - 4840)x 100

=10%
4840

Find the compound intereston? 19375 in 2 years, the rate interest

19

of
year and 8% forthe second year.
EXAMPLE the first
for49%
eing 4
After first
yearthe amount =
19375 1+ 100 =19375/ l04)
100
Solution
104 108
After second
year the amount= 19375 100 \100

26
= 19375 25
21762

Compound interest =21762

- 19375 = 2387

ata certain rate of compound

sum 4800becomes 6000 in 4years
VAMPLE 20 A of
12 years?
What will be the sum after
interest.
4

6000
Solution
4800 1 + 100
4
6000 5
1+ 4800 4
100

)12 125
1+100 64

12 125 =9375
r
4800 1 + 100 = 4800 x 64

Amount after 12 years will be9375

(6000
3=9375
(6000)12/4
Y Short cut: Reguired amount = (480012/4-1 (4800)
 of interest, then
rate after
tyenrsthe both ntities)
empound
at
ears Comparing

Aa on 1000001
for 3 yearsif the
intereat and 6%forthe third yenr
20001 100

16
comyound year
the second if the rate of interest
Fnd fr the yeara, 100)
KAMPLEIL 3% in year, i8 given by or
ethe fret
year,
nterest
on fortthe tth r% both aides,
and
The compound year... Squaring
Soleion the eond
int yearnfr

cube roots
onboth 1des
10000 Taking

interest
=
Here Compound 100000

100092060
100000=115752-
x 53-1 100000
=4x 26x 21
=15752 1

interestt will amount to

atcompound
What sum of money 4%% for the second year
EXAMPLE22 is 3%for the first year, and 5% fog

of interest
S years, if the rate

the third year?

Solution
i.e.

Here,
224952 =
Or
=P(1.03) (1.04) (1.05)
P=
224952

(1.03)(1.04) (1.05)
=200000 . First quantity is higher

EXAMPLE 24 A sum of
t

Short cut: By rule of fraction; 2 years. It would fetch ? 4

(100 100 100 Bum.

Principal = 224952 200000
103 104 Solution Let the sun be

EXAMPLE 23 Anil deposits 20000atthe rate of 16% compounded Compound interest when
annually and Ast
deposits anequal amount at therate of 15% compounded half yearly. If both deposit ta

moneyfor 1
2 years only, calculate which deposit earns better Compounded interest wh
interest.

Solution Amount after 1: 16j12and Difference in interesta i8

years in both the cases will be
be 200(1 + 100/
7.5

100 respectively.
 2

Compound Interest 203

both quantities,
Comparing l6 y3/2
20001 100

16 y3/2
100
100
sides.
both
Syuaring l6 \3
1 100
roots on both sides,
cube
Taking
16 2

100 100
16 2
1+ 5
7.5
100 1+2 100 100

16 2
1+ 15 + 7.5
1+
100 100 100
1 (7.5
2
100 100

1 7.5 \2
100 100
L.e.

7.52
1>
100

the second.
.First
is higher than
quantity
atcompound interest rate
of 20% per annum for

24 A sum of money is lent half-yearly. Find the

EXAMPLE is compounded
482 more if the interest
2years. It would fetch
Sum.

Solution Let the sum be P. 20 72 -P

yearly = P|1+ 100
interest is compounded
interestwhen
10 7 -P
Compound

half-yearly
= 100
interest is compounded
Compounded interest when

Difference in interests is given by

2
20 =482
10
100
100
 482
u-PL2-
=482
PO21- 129 482
P= 121+1.2)(1.21121
482
-20000
2.41x 0.01

EXERCISES
for a period of 18
interest months
deposited
at 5% compound
amount.
Inte

1 T 6an00 find the (d)62981

halfyearly, (c) 62891 (e)
eompounded (b)68921 of 2 years at an interest None d
for a period

of
(a) 69821 deposited and compound interest for
12500is the
simple interest
R
An amount 40
of
depost
(c) ?
2 between 50 (d) (e)
Pind the difference

(b) 20 atsimple interest

Noneol
for 3 years at 7.5% per h
(a) 10 was deposited at the same rate per anTum
of R 8000 deposited
An amount gained had it been cent c
would have
8.
much more

anterest? 138.375(c) ?
(d) 138.753 (e) ? None o h
(b) 138. 75
135.75 (a) amounts in two years to R 2809 andin
threeyo
compound interest
4.Acertain sum at
the original sum.
and
of interest
Find the rate (d) 3000
t 2977.54. (c) 2500 (e) Noneoltb
(b) 2000 on
(a)1500 and compound interest a certain sum
for3yeem
interest
between simple
6. Difference
122. Find the
sum.
5% per annum is
(c) 18000 (d) 20000 (e) None of
(b) 16000 tbes

(a)14000

ANSWERS
4. (c) 5. (b)
1. (6) 2. (b) 3. (c)

Solutions and Hints

3
41
L Amount = -64000 =68921
100 40
2 12
4 12500
2. Difference =Sum x
r
=12500 625
=20
100) 100

3. Difference
Sum xr(300 +r) 8000 x (7.5) (300 +7.5) =138.375
(100) (100)

4. Difference =2977.54 -2809 = 168,54

.Rate of interest= 168.54 x 100 =6%

2809
Let xbe the
amount deposited