299+ Compound Interest Questions and Answers

Q:

Calculate the periodic interest rate corresponding to:9.0% compounded quarterly

A) 3.45	B) 2.25
C) 5.25	D) 6.25

Answer & Explanation Answer: B) 2.25

Explanation:

i=j/m

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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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Q:

The difference between simple interest and compound interest of a certain sum of money at 20% per annum for 2 years is Rs. 56. Then the sum is :

A) Rs. 3680	B) Rs. 2650
C) Rs. 1400	D) Rs. 1170

Answer & Explanation Answer: C) Rs. 1400

Explanation:

We know thatThe Difference between Compound Interest and Simple Interest for n years at R rate of interest is given by $C . I_{n} - S . I_{n} = P {[\frac{R}{100}]}^{n}$

Here n = 2 years, R = 20%, C.I - S.I = 56

$56 = P {[\frac{20}{100}]}^{2} = > P = 56 x {(5)}^{2} = > P = 56 x 25 = > P = Rs . 1400$

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Q:

What is the interest rate per annum, if a sum of money invested at compound interest amount to Rs. 2400 in 3 years and in 4 years to Rs. 2,520?

A) 3.5%	B) 4%
C) 5%	D) 6.5%

Answer & Explanation Answer: C) 5%

Explanation:

Let 'R%' be the rate of interest

From the given data,

$\frac{2520}{2400} = \frac{{(1 + \frac{R}{100})}^{4}}{{(1 + \frac{R}{100})}^{3}} \Rightarrow (1 + \frac{R}{100}) = \frac{63}{60} \Rightarrow R = 5$

Hence, the rate of interest R = 5% per annum.

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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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Q:

A retirement benefit of $12,000 is to be paid every 6 months for 25 years at interest rate of 7% compounded semi-annually. Find

(a) the present value to fund the end-of-period retirement benefit.

(b) the end-of-period semi-annual payment needed to accumulate the value in part (a) assuming regular investments for 30 years in an account yielding 8% compounded semi-annually

A) 245678	B) 234689
C) 281468.06	D) 234578

Answer & Explanation Answer: C) 281468.06

Explanation:

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

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Q:

What amount must you invest now at 4% compounded monthly to accumulate $10,000 after 3 year

A) 8695	B) 7695
C) 3695	D) 4695

Answer & Explanation Answer: A) 8695

Explanation:

Given: j = 4%, m= 12, FV = $10,000, Term= 3.5 years
Then n =m *Term 12(3.5) 42

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Q:

Calculate the effective interest rate compounded quarterly of a 13% annual rate.

A) 13.65%	B) 14.665%
C) 15.65%	D) 16.65%

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