Compound Interest – Aptitude Questions and Answers

Compound interest is a type of interest that is calculated on the initial principal and all of its subsequent accumulated interest. It is different from the simple interest which only calculates the interest earned on the initial principal for a specific period of time. Compound interest has more potential to generate greater returns than simple interest due to its ability to accumulate over time.

Compound Interest is one of the most important topics in Quantitative Aptitude and is frequently asked in competitive exams in India. This article covers all the basic to advanced-level concepts and formulas of Compound Interest that a candidate needs to learn about.

Practice Quiz:

Practice Compound Interest Aptitude Quiz Questions

Compound Interest Formulas and Quick Tricks

Knowing the compound Interest formulas and quick tricks related to compound interest can help candidates solve questions efficiently and accurately, saving them valuable time during the exam.

1. The amount which is lent/deposited is called the Principal.
2. The money that the principal generates is called Interest. This is the money generated as a result of borrowing/lending.
3. Compound Interest is the interest calculated on the cumulative amount, rather than being calculated on the principal amount only.
4. Amount, A = P [1 + (R / 100)]n, where P is the principal, R is the rate of interest per unit time period and n is the time period.
5. Compound Interest, CI = Amount – Principal
6. If the compounding period is not annual, the rate of interest is divided in accordance with the compounding period. For example, if interest is compounded half-yearly, then the rate of interest would be R / 2, where ‘R’ is the annual rate of interest.
7. If interest is compounded daily, the rate of interest = R / 365 and A = P [ 1 + ( {R / 365} / 100 ) ]T, where ‘T’ is the time period. For example, if we have to calculate the interest for 1 year, then T = 365. For 2 years, T = 730.
8. If interest is compounded monthly, the rate of interest = R / 12 and A = P [ 1 + ( {R / 12} / 100 ) ]T, where ‘T’ is the time period. For example, if we have to calculate the interest for 1 year, then T = 12. For 2 years, T = 24.
9. If interest is compounded half-yearly, rate of interest = R / 2 and A = P [ 1 + ( {R / 2} / 100 ) ]T, where ‘T’ is the time period. For example, if we have to calculate the interest for 1 year, then T = 2. For 2 years, T = 4.
10. For finding the time period in which a sum of money will double itself at the R % rate of compound interest compounded annually, we generally use either of the following two formulas :
11. Time, T = 72 / R Years
12. Time, T = 0.35 + (69 / R) Years
13. When the rate of interest is different for different years, say R1, R2, R3 and so on, the amount is calculated as A = P [1 + (R1 / 100)] [1 + (R2 / 100)] [1 + (R3 / 100)] 

Sample Questions on Compound Interest

Q 1. Find the compound interest on Rs. 10,000 at 10% per annum for a time period of three and a half years. 

Solution: 

Time period of 3 years and 6 months means for 3 years, the interest is compounded yearly and for the remaining 6 months, the interest is compounded half-yearly. This means that we have 3 cycles of interest compounded yearly and 1 cycle of interest compounded half yearly. So, Amount = P [1 + (R / 100)]3 [1 + ( {R/2} / 100 )] => Amount = 10000 [1 + 0.1]3 [1 + 0.05] => Amount = 10000 (1.1)3 (1.05) => Amount = Rs. 13975.50 => Compound Interest, CI = Amount – Principal = 13975.50 – 10000 Therefore, CI = Rs. 3975.50 

Q 2. If Rs. 5000 amounts to Rs. 5832 in two years compounded annually, find the rate of interest per annum. 

Solution: 

Here, P = 5000, A = 5832, n = 2 A = P [1 + (R / 100)]n => 5832 = 5000 [1 + (R / 100)]2 => [1 + (R / 100)]2 = 5832 / 5000 => [1 + (R / 100)]2 = 11664 / 10000 => [1 + (R / 100)] = 108 / 100 => R / 100 = 8 / 100 => R = 8 % Thus, the required rate of interest per annum in 8 %

Q 3. The difference between the SI and CI on a certain sum of money at 10 % rate of annual interest for 2 years is Rs. 549. Find the sum.

Solution: 

Let the sum be P. R = 10 % n = 2 years SI = P x R x n / 100 = P x 10 x 2 / 100 = 0.20 P CI = A – P = P [1 + (R / 100)]n – P = 0.21 P Now, it is given that CI – SI = 549 => 0.21 P – 0.20 P = 549 => 0.01 P = 549 => P = 54900 Therefore, the required sum of money is Rs. 54,900 

Q 4. A sum of Rs. 1000 is to be divided among two brothers such that if the interest being compounded annually is 5 % per annum, then the money with the first brother after 4 years is equal to the money with the second brother after 6 years. 

Solution: 

Let the first brother be given Rs. P => Money with second brother = Rs. 1000 – P Now, according to the question, P [1 + (5 / 100)]4 = (1000 – P) [1 + (5 / 100)]6 => P (1.05)4 = (1000 – P) (1.05)6 => 0.9070 P = 1000 – P => 1.9070 P = 1000 => P = 524.38 Therefore, share of first brother = Rs. 524.38 Share of second brother = Rs. 475.62 

Q 5. A sum of money amounts to Rs. 669 after 3 years and to Rs. 1003.50 after 6 years on compound interest. Find the sum. 

Solution: 

Let the sum of money be Rs. P => P [1 + (R/100)]3= 669 and P [1 + (R/100)]6= 1003.50 Dividing both equations, we get [1 + (R/100)]3 = 1003.50 / 669 = 1.50 Now, we put this value in the equation P [1 + (R/100)]3= 669 => P x 1.50 = 669 => P = 446 Thus, the required sum of money is Rs. 446 

Q 6. An investment doubles itself in 15 years if the interest is compounded annually. How many years will it take to become 8 times?

Solution: 

It is given that the investment doubles itself in 15 years. Let the initial investment be Rs. P => At the end of 15 years, A = 2 P Now, this 2 P will be invested. => Amount after 15 more years = 2 x 2 P = 4 P Now, this 4 P will be invested. => Amount after 15 more years = 2 x 4 P = 8 P Thus, the investment (P) will become 8 times (8 P) in 15 + 15 + 15 = 45 years

Related Resources:

Problems on Compound Interest | Set-2

Test your knowledge of Compound Interest in Quantitative Aptitude with the quiz linked below, containing numerous practice questions to help you master the topic:-

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