Interest
Concept of time value of money
Simple interest: I = PRN/100 where, I = interest, N = time, R = rate and P = principal
Amount = principal + interest
The rate of interest is normally specified in terms of annual rate of interest.
Compound interest: the interest of the previous year is added to the principal for
the calculation of the compound interest.
Case 1: when the compound interest is reckoned yearly
A = P [1 + R/100]N and I = A – P
Case 2: when the compound interest is reckoned half yearly
A = P [1 + (R/2)/100]2N and I = A – P
Case 3: when the compound interest is reckoned quarterly
A = P [1 + (R/4)/100]4N and I = A – P
Case 4: when the rates are different for different years say R1%,R2% and R3% for 1 st
2nd and 3rd year
A = P [1 + R1/100] [1 + R2/100] P [1 + R3/100]
Case 5: when interest is compounded annually but time is in fraction say 3(2/5)
A = P [1 + R/100]3 [1 + R(2/5)/100]
The difference between the compound interest and the simple interest over two
years is given by P(R/100)2
Depreciation of value: the value of a machine or any other article subject to wear
and tear decreases with time. This decrease is called depreciation.
If v0 is the value at certain time and R% per annum is the rate of depreciation per
year then the value V1 at the end of the t years is
V1 = V0 [1-R/100]t
The problems on population are similar to the problems on compound interest and
depreciation.
Questions:
The SI on a sum of money is 25% of the principle, and the rate per annum is equal to
the number of years. Find the rate percentage. (4.5, 6 , 5, 8)
The rate of interest of the first 3 year is 6% per annum, for the next four years, 7 %
per annum and for the period of 7 years, 7.5% per annum. If a man lent out 1200
for 11 years find the total interest earn by him? (912)
A sum of money doubles itself in 12 years. Find the rate percentage per annum.
(8.33%) (100/n)%
A certain sum of money trebles in 8 years. In how many years it will be 5 times?(16
years)
A certain sum of money amounts to 704 in 2 years and 800 in 5 years. Find the
principle. (640)
After how many years will a sum of 12,500 become 17500 at the rate of 10% per
annum? (4 years)
A sum of money was invested at SI at a certain rate for 3 years. Had it been invested
at 4% higher rate, it would have fetched 480 more. Find the principle.(4000)
If CI is charged on a certain sum for 2 years at 10% the amount becomes 605. Find
the principal. (500, 550, 450, 400)
If the difference between CI and SI on a certain sum of money is 72 at 12 percent
per annum for 2 years, then find the amount.(6000, 5000, 5500, 6500)
The population of village increases by 10% in the first year, it increases by 20% in
the second year and due to mass exodus, it decreases by 5% in the third year. What
will be its population after 3 years, if today it is 10000? (12,540)
Find the difference between the simple interest and compound interest at 5%
annum for 2 years on a principal of 2000.(5)
What is the difference between CI and SI for the sum of 20000 over a 2 year period
if the compound interest is calculated at 20% and simple interest is calculated at
23%? (400)
In what time will 3300 become 3399 at 6% per annum compounded half yearly? (6
months)
A sum of money triplets itself in 8 years. how many times will it become in 20 years
time ? (6p)
