299+ Compound Interest Questions and Answers

Q:

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?

A) Rs.10123.20	B) Rs.12100
C) Rs.12552	D) Rs.12665

Answer & Explanation Answer: A) Rs.10123.20

Explanation:

Amount

= Rs.(25000x(1+12/100)³

= Rs.(25000x28/25x28/25x28/25)

= Rs. 35123.20.

C.I = Rs(35123.20 -25000)

= Rs.10123.20

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Q:

The effective annual rate of interest corresponding to a nominal rate of 6% per annum payable half-yearly is

A) 6.06%	B) 6.07%
C) 6.08%	D) 6.09%

Answer & Explanation Answer: D) 6.09%

Explanation:

Amount of Rs. 100 for 1 year

when compounded half-yearly = Rs.[100*(1+3/100)^2]=Rs.106.09

Effective rate=(106.09-100)%=6.09%

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Q:

A sum is being lent at 20 % per annum compound interest.what is the ratio of increase in amount of 4th year to 5th year?

A) 4:5	B) 5:4
C) 5:6	D) can't be determined

Answer & Explanation Answer: C) 5:6

Explanation:

$\frac{P {(1 + \frac{r}{100})}^{4}}{P {(1 + \frac{r}{100})}^{5}} = \frac{1}{(1 + \frac{r}{100})} = \frac{100}{100 + r} = \frac{100}{120} = \frac{5}{6}$

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Q:

Compound interest earned on a sum for the second and the third years are Rs.1200 and Rs.1440 respectively. Find the rate of interest ?

A) 20% p.a	B) 15% p.a
C) 18% p.a	D) 24% p.a

Answer & Explanation Answer: A) 20% p.a

Explanation:

Rs.1440 - 1200 = Rs.240 is the interest on Rs.1200 for one year.

Rate of interest = (100 x 240) / (1200) = 20% p.a

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Q:

What will be compounded amount?
I. Rs. 200 was borrowed for 192 months at 6% compounded annually.
II. Rs. 200 was borrowed for 16 years at 6%.

A) I alone sufficient while II alone not sufficient to answer	B) II alone sufficient while I alone not sufficient to answer
C) Either I or II alone sufficient to answer	D) Both I and II are not sufficient to answer

Answer & Explanation Answer: C) Either I or II alone sufficient to answer

Explanation:

I. Amount = $R s . [200 * {(1 + \frac{6}{100})}^{16}]$

II. Amount = $R s [200 * {(1 + \frac{6}{100})}^{16}]$

Thus, I as well as II gives the answer.

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Q:

The least number of complete years in which a sum of money put out at 20% compound interest will be more than doubled is:

A) 3	B) 4
C) 5	D) 6

Answer & Explanation Answer: B) 4

Explanation:

$P {(1 + \frac{20}{100})}^{n} > 2 P \Leftrightarrow {(\frac{6}{5})}^{n} > 2$

$(\frac{6}{5} \times \frac{6}{5} \times \frac{6}{5} \times \frac{6}{5}) > 2$

so, answer is 4 years

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Q:

If you deposit $5000 into an account paying 6% annual interest compounded monthly, how long until there is $8000 in the account?

A) 6.9	B) 7.9
C) 8.9	D) 9.9

Answer & Explanation Answer: B) 7.9

Explanation:

FV=P(1+r/n)^nt

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Q:

Shawn invested one half of his savings in a bond that paid simple interest for 2 years and received Rs.550 as interest. He invested the remaining in a bond that paid compound interest, interest being compounded annually, for the same 2 years at the same rate of interest and received Rs.605 as interest. What was the value of his total savings before investing in thesetwo bonds?

A) Rs.2543	B) Rs.2534
C) Rs.2546	D) Rs.2750

Answer & Explanation Answer: D) Rs.2750

Explanation:

Shawn received an extra amount of (Rs.605 – Rs.550) Rs.55 on his compound interest paying bond as the interest that he received in the first year also earned interest in the second year.

The extra interest earned on the compound interest bond = Rs.55

The interest for the first year =550/2 = Rs.275

Therefore, the rate of interest = $\frac{55}{275} * 100$ = 20% p.a.

20% interest means that Shawn received 20% of the amount he invested in the bonds as interest.

If 20% of his investment in one of the bonds = Rs.275, then his total investment in each of the bonds = $\frac{275}{20} * 100$ = 1375.

As he invested equal sums in both the bonds, his total savings before investing = 2 x 1375 =Rs.2750.

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