Compound Interest

Compound Interest

By; Yashasvi Awasthi

Key Terms To Keep In Mind

• Principal (P); The sum of money that is borrowed or invested

• Rate of Interest (R); The percent of the principle paid as interest per time period

• Time (T); The number of days, months or years that the money is borrowed or invested

• Amount (A); The amount is the sum of the total interest and the principal over a given period

Difference?

Simple Interest & Compound Interest

Simple Interest v/s Compound Interest

• Simple interest; Paid or received over a certain period is a fixed percentage of the principal amount that was borrowed or lent.

• Compound interest; Accumulate and is added to the accumulated interest of previous periods; it includes interest on interest, in other words.

Principal = 10,000, Rate = 2%

Formula of Simple Interest

  $\frac{P\ \times R\times T}{100}$  

Formula of Compound Interest

 $A=P\ \left(1+\frac{R}{100}\right)^n$  

Let's Practice!!

Multiple Choice

Find CI on Rs.12600 for 2 years at 10% per annum compounded annually.

• CI = Rs.2646

• CI = Rs.15246

Multiple Choice

What will be the compound interest on a sum of Rs.25,000 after 3 years at the rate of 12% per annum?

• Rs. 10483.20

• Rs. 10123.20

Rate Compounded Half Yearly

(Semi Annually)

The time period after which the interest is added each time to form a new principal is called the conversion period.

When the interest is compounded half yearly, there are two conversion periods in a year each after 6 months. In such situations, the half yearly rate will be half of the annual rate.

If the interest in compounded half yearly, the rate becomes half.

Let's Practice!!

Multiple Choice

Calculate the amount and compound interest on Rs 10,800 for 3 years at 12 $\frac{1}{2}$ % per annum compounded annually.

• Amount = Rs.15,377.34
  
  Compound Interest = Rs.4,577.34

• Amount = Rs.14,377.34
  
  Compound Interest = Rs.4,677.34

Multiple Choice

Calculate the amount and compound interest on Rs 8,000 for 1 year at 9% per annum compounded half yearly.

• Amount = Rs.8,736.20

  
  

  Compound Interest = Rs. 736.20

• Amount = Rs.7,726.20

  
  

  Compound Interest = Rs. 736

Thank You!!