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 Compound Interest Questions

Popular Latest Rated Important Formulae

FACTS  AND  FORMULAE  FOR  COMPOUND  INTEREST  QUESTIONS

 

 

Let Principal = P, Rate = R% per annum, Time = n years.

I.

1.  When interest is compound Annually:

Amount =P1+R100n

2.  When interest is compounded Half-yearly:

Amount = P1+(R2)1002n

3.  When interest is compounded Quarterly:

Amount = P1+R41004n

 

II.

1.  When interest is compounded Annually but time is in fraction, say 325 years.

Amount = P1+R1003×1+25R100

2.  When Rates are different for different years, say R1%, R2%, R3% for 1st, 2nd and 3rd year respectively.

Then, Amount = P1+R11001+R21001+R3100

 

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

Present Worth = x1+R100n

Q:

Find the compound interest on Rs. 2680 at 8% per annum for 2 years ?

A) Rs. 664.21 B) Rs. 548.68
C) Rs. 445.95 D) Rs. 692.57
 
Answer & Explanation Answer: C) Rs. 445.95

Explanation:

We know Compound Interest = C.I. = P1+r100t - 1

Here P = 2680, r = 8 and t = 2

C.I. = 26801 + 81002-1= 268027252-12= 26802725+12725-1= 2680 5225×225

= (2680 x 52 x 2)/625

= 445.95

 

Compound Interest = Rs. 445.95

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12 3844
Q:

Assume that money can be invested at 8% compounded quarterly,which is larger,$2500 now or $3800 in 5 years?

A) 1557.29 B) 2557.29
C) 2567 D) 2457
 
Answer & Explanation Answer: B) 2557.29

Explanation:

First find the present value of $3800,then compare present values:

 

M  = p(1+i/4)^4n

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2 3789
Q:

Determine the nominal rate of interest if:
The periodic rate is 1.75% per quarter.

A) 7% B) 8%
C) 9% D) 10%
 
Answer & Explanation Answer: A) 7%

Explanation:

j=mi

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3 3721
Q:

The periodic interest rate corresponding to: 9.75% compounded semiannually

A) 4.875 B) 3.785
C) 4.865 D) 4.975
 
Answer & Explanation Answer: A) 4.875

Explanation:

i=j/m

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2 3700
Q:

Find the time to double your investment at 6%

A) 10years B) 11years
C) 12years D) 13years
 
Answer & Explanation Answer: C) 12years

Explanation:

M=p(1+i)^n

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1 3697
Q:

A certain sum is invested for 2 years in scheme M at 20% p.a. compound interest (compounded annually), Same sum is also invested for the same period in scheme N at k% p.a. simple interest. The interest earned from scheme M is twice of that earned from scheme N. What is the value of k?

A) 7 B) 11
C) 9 D) 13
 
Answer & Explanation Answer: B) 11

Explanation:

Interest earned in scheme M =   

P1 + 201002  - 1  = 11P25

Interest earned in scheme N =  

P x k x 2100 = Pk50

 

Now, from the given data,

 

11P25 = 2 x Pk50

k = 11

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20 3642
Q:

What lump sum deposited today would allow payments of $2000/year for 7 years at 5% compounded annually?

A) 11572.71 B) 11876
C) 189756 D) 11576
 
Answer & Explanation Answer: A) 11572.71

Explanation:

 

 

A=R[(1+i)^n-1]/i(1+i)^n

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0 3547
Q:

For a nominal interest rate of 8.4%, what is the compounding frequency if the periodic interest rate is 8.4

A) 1 B) 2
C) 3 D) 4
 
Answer & Explanation Answer: A) 1

Explanation:

m=j/i

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0 3511