Department of Mathematics

Jain Global campus, Jakkasandra Post, Kanakapura Taluk, Ramanagara District -562112

Aptitude Training
on
Simple Interest & Compound Interest

Dr.Vimala T,
Department of Mathematics,
FET, Jain(Deemed-to-be-University)
 What is Interest?
• When you borrow Money from someone.
• Or use somebody else’s Money.
• You have to pay a service charge to him.
• This amount is paid back to the Lender along with the original
amount borrowed.
• This is sometimes known as the cost of Money which doesn’t
belong to you, but you have used it.
 What is Interest?

• This extra amount is called the “INTEREST”.

• The original amount borrowed is known as the “PRINCIPAL”
OR “CAPITAL” in different situations.
• The sum of both Principal and the interest is known as
“AMOUNT”.

.
 Types of Interest

• There are basically TWO types of Interest

• They are

SIMPLE INTEREST COMPOUND INTEREST

 Interest Calculation

• To estimate or calculate the Interest we must have the

following parameters as input.
• A rate known as the Rate of Interest (RI) which is expressed in
Percent per Year.
• A time period expressed in Years or Months or Days.
• The Principal on which the Interest is to be calculated.
• And finally the Type of Interest (Methods of calculation are
different)

.
 Simple Interest

❖ Simple Interest is dependent on:

❖Rate of Interest
❖Time period
❖Principal
❖And the Principal remains the same at the beginning of all the
periods.
❖It means that the accrual of Interest is Linear.
 Compound Interest

❖ Compound Interest is dependent on:

❖Rate of Interest
❖Time period
❖Principal
❖And the Principal increases by the interest amount at the end
of each Period.
❖Interest for the next period is calculated on this increased
Principal.
 Compound Interest

❖ It means that the Principal plus Interest of one period

becomes the Principal for the next period.
❖This goes on till the total time period for which the compound
interest is calculated.
❖This Period is called the period of compounding or the
compounding interval.
❖At the end of each such period the accrued interest is added
to the Principal for the next interval.
❖In other words, the interest earns interest.
 Compound Interest
❖It means that the accrual of Interest is NOT linear, but
exponential.
❖The compounding may be
❖ Yearly, Half-Yearly,
❖ Quarterly, Monthly,
❖ Weekly, Daily,
❖ Continuous (Infinitely Compounded)
 Camparison [@ 10% pa]
Yaer (SI) Principal Interest

1 100 10

2 100 10

3 100 10

4 100 10

5 100 10

6 100 10

7 100 10

8 100 10

Total 80
Simple Interest

Problems, Tips and Tricks

 Formula
• Principal: The money borrowed or lent out for a certain period is
called the principal or the sum.
• Interest: Extra money paid for using other’s money is called
interest.
• Simple Interest (S.I.): If the interest on a sum borrowed for a certain
period is reckoned uniformly, then it is called simple interest.
Let Principal = P, Rate = R% per annum (p.a) and Time = T years.
Then,
𝑃∗𝑇∗𝑅
i) S. I =
100
100∗𝑆.𝐼 100∗𝑆.𝐼 100∗𝑆.𝐼
ii) P = ; R= and T =
𝑅∗𝑇 𝑃∗𝑇 𝑃∗𝑅
Compound Interest

Problems, Tips and Tricks

 Formula

𝑛
𝑅
𝐴=𝑃 1+
100
A = final amount
P = initial principal balance
R = interest rate
n = number of times interest applied per time period

Compound Interest = Amount – Principal

❖Pls note that the “Simple Interest” CAN be directly calculated, but
the “Compound Interest” CAN”T be directly calculated.
❖First the Amount is calculated and then the difference of Amount
and Principal is the “Interest”
❖ A = P +I I =A - P
 Camparison [@ 10% pa]
Yaer (CI) Principal Interest

1 100 10

2 110 11

3 121 12.1

4 133.1 13.3

5 146.4 14.6

6 161.1 16.1

7 177.2 17.7

8 194.9 19.5

Total 114.5
Parameter Simple Interest Compound Interest

Formula SI=(P*R*T)/100 𝑅 𝑛
CI = 𝑃 1 + −𝑃
100

Return Amount Lesser Higher

Principal amount Constant Varying during the entire borrowing

period

Interest Charged Interest charged on principal Interest charged on principal and

amount accumulated interest

Growth The growth remains quite uniform The growth increases quite rapidly
 Some Norms

❖Simple Interest is rarely used in today’s world.

❖Business, Banks, Statistics, Finance, Demography, Population,
Accounting, everywhere the Compounding Interest/Growth/
Increases are used.
❖If the compounding interval is not mentioned then it is
assumed to be “Yearly”.
Problems 1 :
A man took loan from a bank at the rate of 12% p.a. simple interest. After 3 years
he had to pay Rs. 5400 interest only for the period. The principal amount borrowed
by him was:
a) Rs.2000
b) Rs.10000
c) Rs.15000
d) Rs.20000
Explanations:

Option: C
100∗5400
Principal = Rs = 𝑅𝑠. 15000
12∗3
Problems 2:
What will be the difference between the interest on a sum of Rs. 2,000 at 7% per
annum for 3 years and that on a sum of Rs.3,200 at 6% per annum for 2 years?
a) Rs.36
b) Rs.44
c) Rs.30
d) Rs.40
Explanations:
Option: Principal amount 1: Rs. 2000
Interest rate 1: 7% per annum
Time period 1: 3 years
Principal amount 2: Rs 3.200
Interest rate 2: 6% per annum
Time period 2: 2 years
Concept: Simple interest calculation
𝑡1 3
Calculation: SI 1 = 𝑃1 ∗ 𝑟1 ∗ = 2000 ∗ 7 ∗ = 𝑅𝑠. 420
100 100
𝑡2 2
SI 2 = 𝑃2 ∗ 𝑟2 ∗ = 3200 ∗ 6 ∗ = 𝑅𝑠. 384
100 100
Difference = SI1-SI2 = 420-384 = Rs.36
Problems 3:
1
Find the simple interest on Rs.3000 at6 % per annum for the period from 4th Feb.,
4
2005 to 18th April, 2005.
a) 38
b) 37
c) 37.5
d) 23.4
Explanations:

Option: A
Time = (25+31+18) days = 74 days = 74/365 years P = Rs.3000 and R =
1 25
6 %p.a = %p.a
4 4
S.I = Rs.(3,000*(25/4)*(74/365)*(1/100)) = Rs. 38
Problems 4:

A sum of Rs. 800 amounts to Rs. 920 in 3 years at simple interest. Interest rate is
increased by 8%, it would amount to how much?

a) 1020
b) 920
c) 1112
d) 1089
Explanations:

Option: C
S.I. = Rs. 920 − 800 = 𝑅𝑠. 120; 𝑝 = 𝑅𝑠. 800, 𝑇 = 3 𝑦𝑒𝑎𝑟𝑠.
100∗120
R= % = 5%
800∗3
New rate = 5 + 8 % = 13%
800∗13∗3
New S. I.= 𝑅𝑠. = 𝑅𝑠. 312
100
New amount = 𝑅𝑠. 800 + 312 = 𝑅𝑠. 1112
Problems 5:

A man borrowed some money at the rate of 6% p.a. for the first two years, at the rate
of 9% p.a. for the next three years, and at the rate of 14% p.a. for the period beyond
five years. If he pays a total interest of Rs. 11,400 at the end of nine years how much
money did he borrow?
a) 15,000
b) 12,450
c) 12,000
d) 11,780
Explanations:
Option: C
𝑥 ∗ 2 ∗ 6 𝑥 ∗ 9 ∗ 3 𝑥 ∗ 14 ∗ 4
+ + = 11400
100 100 100
3𝑥 27𝑥 14𝑥
+ + = 11400
25 100 25
95𝑥
= 11400
100
11400 ∗ 100
𝑥= = 12000
95
Problems 6:

Divide Rs.6000 into two parts so that simple interest on the first part for 2 years at 6%
p.a. may be equal to the simple interest on the second part for 3 years at 8% p.a.

a) Rs.4000, Rs.2000
b) Rs.5000, Rs.1000
c) Rs.3000, Rs.3000
d) Rs.6000, Rs.2000
Explanations:
Option: A
Let 1st part is x and 2nd part is (6000-x)
According to question
𝑥∗2∗6 6000 − 𝑥 ∗ 3 ∗ 8
=
100 100
12x = 144000-24x
Or, 36x = 144000
Or, x = 144000/36 = Rs.4000
1st part = Rs. 4000
2nd part = Rs. 2000
Problems 7:

A sum of Rs. 12,500 amounts to Rs. 15,500 in 4 years at the rate of simple interest.
What is the rate of interest?
a) 3%
b) 4%
c) 5%
d) 6%
Explanations:

Option: D
SI = RS.(15500-12500) = Rs.3000
100∗3000
Rate = % = 6%
12500∗4
Problems 8:
A sum of Rs.10000 is borrowed by Akshay for 2 years at an interest
of 10% compounded annually. Find the compound interest and amount he has to pay
at the end of 2 years.
a) Rs.2100 and Rs.12100
b) Rs.2100 and Rs.1100
c) Rs.3100 and Rs.12100
d) Rs.2100 and Rs.42100
Explanations:

Option: A
P = Rs.10000, Rate = 10% and Time = 2 years
𝑅 2
Amount (𝐴) = 𝑃 1 + = 𝑅𝑠. 12100
100
Compound interest(for 2nd year) = A−𝑃 = 12100 − 10000 = 𝑅𝑠. 2100
Problems 9:

The compound interest on rs.30000 at 7% per annum is Rs.4347. The period is

a) 2 years
b) 2.5 years
c) 3 years
d) 4 years
Explanations:

Option: A

Amount = Rs.(30000+4347)=Rs.34347
Let the time be n years
7 𝑛
Then, 30000 1 + = 34347
100
𝑛 2
107 34347 11449 107
= = =
100 30000 10000 100
𝑛 = 2 𝑦𝑒𝑎𝑟𝑠
Problems 10:

There is 60% increase in an amount in 6 years at simple interest. What will be the
compound interest of Rs.12,000 after 3 years at the same rate
a) Rs.4972
b) Rs.3972
c) Rs.5972
d) Rs.2972
Explanations:

Option: B

Let P = Rs.100. Then , SI. Rs.60 and T= 6 years

100∗60
R= = 10% p.a
100∗6
Now, P=Rs. 12000, T = 3 years and R = 10% p.a
10 3
C.I = Rs. 12000 ∗ 1 + − 1 = 3972
100
Problems 11:

The difference between the compound interest and simple interest on a certain sum
at 10% per annum for 2 years is Rs. 631. Find the sum.

a) 60100
b) 61100
c) 62100
d) 63100
Explanations:
Option: D

Let the sum be Rs.X. Then,

2
10 21𝑋
C.I = 𝑋 1 + −𝑋 =
100 100
𝑋∗10∗2 𝑋
S.I = =
100 5
𝑋
C.I –S.I =
100
𝑋
= 631 𝑋 = 63100
100
Problems 12:

Divide Rs. 1301 between A and B, so that the amount of A after 7 years is equal to the
amount of B after 9 years, the interest being compounded at 4% per annum.

a) Rs.625
b) Rs.626
c) Rs.286
d) Rs.627
Explanations:
Option: A

Let the two parts be Rs.X and Rs.(1301-X)

7 9
4 4
𝑥 1+ = 1301 − 𝑥 1 +
100 100
𝑥 4 2 26 25
= 1+ = ∗
1301 − 𝑥 100 25 26
625𝑥 = 676 1301 − 𝑥
𝑥 = 676
So, the parts are Rs.676 and Rs.(1301-676)=625
Problems 13:

A TV was bought for Rs. 21,000. The value of the TV was depreciated by 5% per
annum. Find the value of the TV after 3 years.
a) Rs.18004
b) Rs.19000
c) Rs.16500
d) Rs.9600
 Explanations:
Option: A

Principal (P) = Rs. 21,000

Rate of depreciation (R) = 5%
n=3
Using the formula of CI for depreciation,
A = P[1 – (R/100)]n
A = Rs. 21,000[1 (5/100)]3
= Rs. 21,000[1 – (1/20)]3
= Rs. 21,000[(20 – 1)/20]3
= Rs. 21,000 × (19/20) × (19/20) × (19/20)
= Rs. 18,004.875
Therefore, the value of the TV after 3 years = Rs. 18,004.875.
THANK YOU