Compound Interest Problems For A Bank Exam

Compound Interest Problems For A Bank Exam

 Quantitative Aptitude Study Notes for Bank Exam

You know that quantitative aptitude section is most important in bank exams in PO and Clerk and for other competitive exams because if you want good score in bank exam then you have to score good in maths. In competitive exams the most important thing is time management, if you know how to manage your time then you can do well in Bank Exams as well as in other competitive exams. That’s where maths shortcut tricks and formula are comes into action. So continuously we are providing shortcut tricks on different maths topics. Today’s topic is Compound Interest. This is the one of the most important topic in quantitative aptitude section in bank and SSC exam. You should know how to compound interest problems in very short time for bank exam. From this chapter around 1-2 questions are given in the SBI and IBPS exams. For this here we are providing shortcut tricks and quicker method to solve compound interest problems in very short time.  Interest is the money paid by the borrower to the lender for the use of money lent. The sum lent is called the principal. Interest is usually calculated at the rate of so many rupees for every Rs 100 of the money lent for a year. This is called the rate per cent per annul.

‘per annum’ means for a year. The words ‘per annul’ are sometimes omitted. Thus, 6 p.c. means that Rs 6 is the interest on Rs 100 in one year.

The sum of the principle and interest is called the amount.

The interest is usually paid yearly, half-yearly or quarterly as agreed upon.

COMPOUND INTEREST: Money is said to be lent oat compound Interest (CI) when at the end of a year or other fixed period the interest that has become due is not paid to the lender, but is added to the sum lent, and the amount thus obtained becomes the principal for the next period. The process is repeated until the amount for the last period has been found. The difference between the original principal and the final amount is called Compound Interest (CI).

IMPORTANT FORMULAE FOR COMPOUND INTEREST:

Let Principal = P

Time = t yrs

Rate = r% per annul

Case 1. When interest is compounded annually:

Amount = P(1+r/100)^n

Case 2. When interest is compounded half yearly,

Amount = P(1+(r/2)/100)^2n

Case 3. When interest is compounded Quarterly,

Amount =P(1+(r/4)/100)^4n

Case 4. When interest is compounded annually but time is in fraction, say 3 whole 2/5 year 

Amount = P(1+r/100)^3×(1+(2r/5)/100)

Case 5. When Rates are different for different years, say r1%, r2%, and r3% for 1st, 2nd and 3rd year respectively.

Then,    

Amount = P(1+r1/100)×(1+r2/100)×(1+r3/100).

Present worth of Rs. x due n years hence is given by:

Present Worth = x/(1+r/100)

Difference between Compound Interest & Simple interest Concept For Two years 

CI – SI =P(r/100)^2

For Three Year 

CI – SI =P(r^2/(100^2 ))×(300+r)/100)

For  Two year 

CI/SI=(200+r)/200

The above mentioned formulae are not new for you. We think that all of you know their uses. When dealing with the above formulae, some mathematical calculations become lengthy and take more time. To simplify the calculations and save the valuable time we are giving some extra information. Study the following sections carefully and apply them during your calculations.

The problem are generally asked upto the period of 3 years and the rates of interest are 10%, 5% and 4%.

We have the basic formula:

Amount = Principal(rate/100)^time

If the principal is Rs 1, the amount for first, second and third years will be

(1+r/100), (1+r/100)² and (1+r/100)³.

And, if the rate of interest is 10%, 5% and 4%, these value will be:

TIME	1 YEAR	2 YEARS	3 YEARS
r	(1+r/100),	(1+r/100)2	(1+r/100)3
10	11/10	121/100	1331/1000
5	21/20	441/400	9261/8000
4	26/25	676/625	17576/15625

The above table should be remembered. The use of the above table can be seen in the following examples.

COMPOUND INTEREST QUESTIONS WITH ANSWERS:

Ex. 1: Rs. 7500 is borrowed at CI at the rate of 4% per annum. What will be the amount to be paid after 2 years?

Solution: as the rate of interest is 4% per annum and the time is 2 yrs. Our concerned fraction would be 676/625. Form the above table, you know taht Rs 1 becomes Rs 676/625 at 4% per annum after 2 yrs. So, after 2 yrs Rs 7500 will produce 7500 * 676/625

= rs 8112.

Ex. 2: What will be the compound interest on a sum of Rs. 25,000 after 3 years at the rate of 12 p.c.p.a.?

Solution: Amount = Rs. 25000(1+12/100)^3= 35123.20

So CI= Rs. (35123.20 - 25000) = Rs. 10123.20

To find the % difference between CI and SI

Ex. 3: to find the % difference between CI and SI, for 2 yrs if rate of interest is 4%.

Solution:

SI = 2 * 4 = 8% of capital

CI = 4 + 4 + 4*4/100

=2*4 + 16/100

= 8.16% per capital

 Ex. 4: The difference between simple interest and compound on Rs. 1200 for one year at 10% per annum reckoned half-yearly is:

Solution: SI =Rs. (1200 ×10×1)/100= Rs. 120 

CI = Rs. [ 1200×(1+5/100) ^2 - 1200] = Rs.123

So CI-SI = Rs. 3

To find time:

Ex. 5: in what time will Rs 390625 amount to Rs 456976 at 4% compound interest?

Solution:

P(1+r/100)^t = A

390625(1+4/100)^t = 456976

(1+1/25)^t = 456956 / 390625

(26/25)^t = (26/25)⁴

T = 4

The required time is 4 years

Ex. 6: The compound interest on Rs. 30,000 at 7% per annum is Rs. 4347. The period (in years) is:

Solution:

Amount = Rs. (30000 + 4347) = Rs. 34347,

Let the time be n years then 

30000(1+7/100) ^n = 34347

(107/100) ^n = 34347/30000

So n = 2 year.

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