5 Reasons to get MBA

The principle of compounding growth is used extensively in the financial world to transform small savings into a big corpus over time. It’s also the underlying idea behind MBA topics such as time value of money and discounted cash flow (DCF) valuation.

Learn about simple and compound interest concepts as you’ll need them not only for entrance exams but in the real world too, especially after you become rich and famous.

## Simple and Compound interest Problems and Solutions

Here is a list of some basic definition and formulas to solve problems on Interest.

Principal: This is the sum of money lent or borrowed.

Interest: This is the extra money paid for taking the money as loan. This is often expressed as a percentage.

Say, the interest is 10% on a loan of Rs. 100. Then the interest in amount is Rs. 10 and at the end of the year, the amount to be paid is Rs. 110.

Time: This is the time period for which the money is lent or the time period in which the money has to be returned with interest.

#### Simple Interest

As the name implies, the calculation of simple interest is pretty simple. Multiply the principal amount with the number of years and the rate of interest.

Simple Interest Formula:
Simple Interest = Principal * Time * Rate of interest / 100

Abbreviated as SI = PTR/100

#### Compound Interest

In compound interest, the principal amount with interest after the first unit of time becomes the principal for the next unit.

Say, when compounded annually for 2 years, the principal amount with interest accrued at the end of first year becomes the principal for the second year.

Compound Interest Formula:
Amount = Principal * [1 + Rate of Interest/100]Time period

Abbreviated as Amount = P * [1 + R/100]t, when compounded annually.

Sometimes, the interest is also calculated half-yearly or quarterly.

When compounded semi-annually or half-yearly,

Amount = P[1 + (R/2)/100]2t

When compounded quarterly,

Amount = P[1 + (R/4)/100]4t

Present worth of Principal P due t years hence is given by:

P/[1+ R/100]t

### Sample problems and solutions

Let us work on some examples to understand the concepts and the differences.

Problem 1. A sum of Rs. 25000 becomes Rs. 27250 at the end of 3 years when calculated at simple interest. Find the rate of interest.

Solution:

Simple interest = 27250 – 25000 = 2250

Time = 3 years.

SI = PTR / 100 → R = SI * 100 / PT

R = 2250 * 100 / 25000 * 3 → R = 3%.

Problem 2. Find the present worth of Rs. 78000 due in 4 years at 5% interest per year.

Solution:

Amount with interest after 4 years = Rs. 78000

Therefore, simple interest = 78000 – Principal.

Let the principal amount be p.

78000 – p = p*4*5/100 → p=13000

Principal = 78000 – 13000 = Rs. 65000

Problem 3. A certain principal amounts to Rs. 15000 in 2.5 years and to Rs. 16500 in 4 years at the same rate of interest. Find the rate of interest.

Solution:

Amount becomes 15000 in 2.5 years and 16500 in 4 years.

Simple interest for (4-2.5) years = 16500 – 15000

Therefore, SI for 1.5 years = Rs. 1500.

SI for 2.5 years = 1500/1.5 * 2.5 = 2500

Principal amount = 15000 – 2500 = Rs. 12500.

Rate of Interest = 2500 * 100 / 12500 * 2.5 → R = 8%.

Problem 4. Find the compound interest on Rs. 3000 at 5% for 2 years, compounded annually.

Solution:

Amount with CI = 3000 (1+ 5/100)2 = Rs. 3307.5

Therefore, CI = 3307.5 – 3000 = Rs. 307.5

Problem 5. Find the compound interest on Rs. 10000 at 12% rate of interest for 1 year, compounded half-yearly.

Solution:

Amount with CI = 10000 [1+ (12/2 * 100)]2 = Rs. 11236

Therefore, CI = 11236 – 10000 = Rs. 1236

Problem 6. The difference between SI and CI compounded annually on a certain sum of money for 2 years at 8% per annum is Rs. 12.80. Find the principal.

Solution:

Let the principal amount be x.

SI = x * 2 * 8 / 100 = 4x/25

CI = x[1+ 8/100]2 – x → 104x/625

Therefore, 104x/625 – 4x/25 = 12.80

Solving which gives x, Principal = Rs. 2000.

Problem 7. Find the simple interest on Rs. 5000 at a certain rate if the compound interest on the same amount for 2 years is Rs. 253.125.

Solution:

Let the rate of interest be r.

5000[1+ r/100]2 = 5000+253.125

→ [1+r/100]2 = 5253.125/5000

Solving which gives

[1+ r/100]2 = 1681/1600

→ 1+r/100 = 41/40

→ r = 2.5

Therefore, SI = 5000* 2 * 2.5/ 100 = Rs. 250.

Problem 8. A certain amount becomes Rs. 5760 in 2 years and Rs. 6912 in 3 years. What is the principal amount and the rate of interest?

Solution:

Interest on Rs. 5760 for 1 year = 6912 – 5760 = Rs. 1152

Therefore, Rate of interest for 1 year = 100*1152/5760*1 = 20%

Let the principal be p.

Then, Principal = p[1+ 20/100]2 = 5760

Solving which gives Principal = Rs. 4000

Problem 9. How long will it take a certain amount to increase by 30% at the rate of 15% simple interest?

Solution:

Let the principal be Rs. x

Simple interest = x*30/100 = 3x/10

T = 100*SI/PR = 100*3x/10 / x*15 = 2%

Alternatively, this can be solved by considering principal amount to be Rs. 100. Then simple interest becomes Rs. 30.

Then, T = 100*30/100*15 = 2%

### Simple and Compound Interest Quiz: Solve these problems

Problem 1
A money lender lent Rs. 1000 at 3% per year and Rs. 1400 at 5% per year. The amount should be returned to him when the total interest comes to Rs. 350. Find the number of years.

A. 3.5
B. 3.75
C. 4
D. 4.5

A.

Explanation

(1000*t*3/100) + (1400*t*5/100) = 350 → t =3.5

Problem 2
Find the present worth of Rs. 20872.5 due 2 years hence at 10% rate of interest.

A. 17500
B. 17520
C. 17750
D. 17250

D.

Explanation:

Present worth = 20872.5/[1+ 10/100]2

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tell me the procedure for this problems immediately sir
A certain sum when invested for 2 years at 20% per annum Compound Interest (compounded annually), earns Rs.2288 as interest. What will oe the interest earned if the same sum of money is invested for 5 years at 12 % per annum Simple Interest ?
The compound interest (compounded annually) on Rs. 9300/- Tor 2 years @ R% p.a. is Rs. 4092/-. Had the rate of interest been (R-10)%, what would have been the interest on the same sum of money for the same time (2 years) ?
Train A can completely cross train B (from the moment they meet), travelling in opposite direction (towards each other), in 14 seconds. If the speed of trains A and B are 65 kmph and 52 kmph respectively and the length of train A is 71 m more than that of train B, what is the length of train A ? (in m)

men can finish a project in 45 days. Only 36 men started working and after 4 days 12 women replaced them. If these 12 women could finish the remaining work in 54 days, how many days will only 12 women take to finish the complete project ?

• Sanjay says:

Let the sum be x.
Then, CI amount = x(1+20/100)square= 2288.
=> x(1.2)square= 2288+x
=> 1.44x = 2288+x
=> 0.44x = 2288
=> x = 2288/0.44
=> x = 5200.
Now, principle is equal to 5200.
Thus, interest earned @ 12% p.a SI after 5 years will be = (5200*12*5)/100 = Rs. 3120.

• Hvvg says:

• parvinder kumar says:

Here,p=Rs.78000,time=4 years and rate%=5%p.a.
Now,to find amount,first we will found S.I.
S.I.=P*R*T*/100
7800*4*5/100=Rs.15600.
Now,amount=P-S.I.
Rs.78000-Rs.15600
=Rs.62400Ans.

3. Amit singh says:

P=1500 A=1900 r=? T=3

4. chakri says:

Ram invested total sum of 18000rs. In two schemes A &B for two years scheme A. Offers C.I @10 p.c.p.a , and scheme B offers. S.I @ 8 p.c.p.a. if the total interest earned by him from both schems after 2 years is 3510 rs . How much money (principal) did he invested in scheme B?

• Shahinkhan says:

600 rs invested by compound interest
17400rs invested by simple interest

5. Dharinidevi Thakore says:

Could you please solve this problem sir….
Mr. X invested certain sum on simple interest and the same sum on compound interest at a certain rate of interest per annum. He noticed that the ratio between the difference of compound interest and the simple interest of 3 years and that of 2 years is 25:8 . The rate of interest per annum is ?

• Rajat Gupta says:

12.5%

• vasavi says:

will you plz explain in detail

6. Nimish Mishra says:

If the interest collected after 5th year is 51840 and after 6th year is 62208 compounded annually. Find the rate of interest?

7. ROSHEN says:

THE DIFFERENCE BETWEEN THE COMPOUND INTEREST AND SIMPLE INTEREST FOR 3 YEARS AT 5% P.A. ON A CERTAIN SUM OF MONEYWAS Rs610 FIND THE SUM

• Kalyan Basavarsu says:

• Kalyan Basavarsu says:

Explanation:

The Sum has to be 100%. So, 5% interest would be 5 for the first year. Second year it would be 0.25(5% of 5) and the the third year interest would be 0.2625(5% of 5.25). hence, the difference would be 0.7625(S.I-15 and CI 15.7625). We can solve it by 0.7625/100=610, which is 80,000.

8. Ryder says:

Rashi invested RS.16000 for 2 years at Compound Interest and received an amount of RS.17640.What is the rate of interest?
Help me to solve this.

• Bharath says:

17640 =16000{1+r/100)^2
you get
11025 ={100+r)^2;
100+r =105;

9. David Poudel says:

Kashis Deposited rs50000 @ 4% in saving account .
After 5 Years he withdrew rs 10000 and total interest of 5 Yrs how long should he keep the remaining amount to get total interest rs 14800 from the beginning .

• Kalyan Basavarsu says:

Explanation.

For the First Five Five years Simple Interest for 50,000 @ 4% per year is Rs.10,000.
If he withdrew Rs.10,000 from Rs.50,000, then his new Principal is Rs.40,000.

S.I for 40,000 will be 4800=40000*T*4/100,
Solving will give you 3 years.
So, he has to keep it for 3 more years to accumulate a total interest of 14800 from the beginning.

10. maitri shah says:

A amount of 2300 was borrowed by ankit at a simple interest of 12% p. A he returned the amount with interest after 3 year calculate the total amount including the simple interest he had to repay please give me solution

• umaiyal says:

SOLN:
P=2300
N=3 YEAR
R=12%
S.I= PNR/100
= 2300*3*12/100
= 82800/100
S.I =828
TOTAL AMOUNT= PRINCIPLE+S.I
=2300+828
=RS.3,128

11. umaiyal says:

how to solve the problem when the interest in paises?
p=85000, n=365days(1 yr) S.I=5,900
principal+interest amt= 90,900
interest=0.58 p per rs.100 and 0.33 p per rs.100
how to solve the problem. and find out the rate of interest and interest amt ?

12. Sharan says:

A sum of money invested at a certain rate of interest compounded annually. It amounted to 1375 in 5 years and 1980 in 7 years. Find the annual rate of interest .please solve this

• Kalyan Basavarsu says:

Ill tell you how,
Consider two equations
P(1+r/100)^5=1375——1
P(1+r/100)^7=1980——2
Now divide 2 by 1
i.e., (1+r/100)^2=36/25
Hence, 1+r/100=6/5.
So, r/100=1/5 i,e., r=20%.

13. fibha says:

In what time will Rs 3000 amount to Rs 3,646.50 at 5% compound interest.

• Kalyan Basavarsu says:

Explanation:

The Compound Interest on 1st year is 150. Second year is 307.5(5% of 3150). Third year is 472.87(5% of 3307.5) and the fourth year Interest would be 646.51(5% of 3472.87). So it takes 4 years for the Sum of Rs.3000 to become Rs.3646.50 when Compounded annually.

14. surendra saud says:

please tell me solution if the intrest of certain amount is increased by rate of 0.10 in every six month, at what time compound intrest of Rs 4000 is Rs1324.

15. Rut says:

Rahul borrowed ₹100000 at the rate of 8% p.a compund interest , interest being compounded annually.how much should he repay at the end of first year , so that by repaying ₹54000 at the end of the second year he can clear the loan.

16. Sukesh says:

On a certain sum of money lent out at 16%per annum the difference between the compound interest for 1 year, payable half yearly, and the simple interest for 1 year is rs.56.the sum is

• Nayoumi Mytholla says:

Principle amount=100000
rate of interest=8%
CI=P*(1+r/100)^n
n=1(for the first year)
CI=100000*(1+8/100)^1
CI=100000*(108/100)
CI=1,0,80000
In the end of the 2nd year he is repaying the money 54000
to repay the 54000 in the 2nd year to clear the loan he should repay
108000-54000=54000
He should repay 54000 in the 1st year to complete the loan

• Stigi1993 says:

P(1 r/200)^2 is CI half yearly. SI=Pnr/100.

So CI-SI=56. So 0.1856X=56. X=301 round off….Its my working. Try and see how you go.

17. Dhruba paudel says:

The difference between simple interest received from two banks on principal rs 50000 for two years is rs 2500. what is the difference between their rates?

• Manoj says:

S.I = p*t*r/100

2500 = { 50000*2*(R1 – R2) } / 100

By soving we will get R1 – R2 = 2.5%

18. Akinpelu Akintayo says:

question on simple interest and compound interest.
1.you take a loan out for \$100 at 30% simple interest.you will owe \$30 interest after the first time period,\$60 after the second,\$90 after the third,and \$120 after the fouth.
2.you take out a second loan of \$100 at 30% compound interest.you will owe \$30 interest after the first time period,then \$119.70,then \$285.61.
3.multiple other factors can come into play when calculating more complex forms of interest,including credit risk and inflation.
Explain how simple interest and compound interest is calculated in no (1) and (2).

19. Shreya says:

The difference between the C.I and S.I on a certain sum at 15% per annum for 2 yrs is 45 Rs. Find the sum……do it with full process fast

• chik says:

C.I-S.I=P(r/100)^2
45=P(15/100)^2

=>P=45*400/9=2000

• Bhushan Nepal says:

Sir please solve my question immediately.
A sum of money is placed at simple interest for 3 years at 10•/• per annum and then the amount is invested for 2 years at the same rate at Compound interst. IF THE total amount of 5 years become Rs. 471900. What was the sum?

ram deposited total sum of 44170 in scheme A andB at 10% compond interest whereas scheme B offers simple interest.if he received same amount of intrest from the two schemes.what was the amount that he invested in scheme A?

21. Ukonu Marvellous says:

what’s the meaning of Rs

• Jabir says:

Rs= rupees… The currency of the India as well as Nepal

22. Thenmozhi says:

A person is having some amount with him. He gave one-third of the amount as loan to A and took back 54 more. He gave half of the amount with him as loan to B and took back 25 more. When he met C, the amount left was Rs.262. What was the amount with the person when he met A?

23. Emily says:

Julia saved RM5000 in a saving acount which pays 12% compounded monthly. 8 monthly later she saved another Rm5000. Determine the amount in the account two years after her first saving.

Can you help me to solve this problem?

24. XYZ says:

SI=A-P.
SI=1900-1500=400.
SI=P×T×R/100.
SI=1500×3×R/100.
SI=45×R.
400=45×R.
400/45=R.
R=8.9%.

25. hannah says:

Mr. Aye borrowed P2,000 from Mr. Yoo on June 1, 2012 and P500 on June 1,2014, agreeing that money in worth 5% effective rate. Mr. Aye paid P500 on June 1, 2015. P400 on June 1, 2016 and P700 on June 1, 2017. What additional sum should Mr. Aye pay on June 1, 2020 to discharge all remaining liability?

I am looking for formula on this and solution thank you

26. Binaya Bastola says:

Q.The compound interest on a sum of money for 2 years is Rs1260 and the simple interest on the same sum at the same rate in 3 years is Rs1800.Find the sum and the rate of interest.