Quants 26 - Interests

 Practice Questions:

Question 1:

What is the difference between the simple interest on a principal of ` 500 being calculated at 5% per annum for 3 years and 4% per annum for 4 years?

5% for 3 years (SI) = 15% of the amount; At the same time 4% SI for 4 years means 16% of the amount. The difference between the two is 1% of the amount. 1% of 500 = ` 5

(or)

SI = PNR/100 = (500*5*3)/100 = 75

SI = PNR/100 = (500*4*4)/100 = 80

Difference = 80 - 75 = 5.

Question 2:

In what time will ` 3300 become ` 3399 at 6% per annum interest compounded half-yearly?

Since compounding is half yearly, it is clear that the rate of interest charged for 6 months would be 3% 

3300 -3%- 3399.

Question 3:

What is the simple interest for 9 years on a sum of ` 800 if the rate of interest for the first 4 years is 8% per annum and for the last 4 years is 6% per annum?

8% of 800 for 4 years + 6% of 800 for 4 years = 64 × 4 + 48 × 4 = 256 + 192 = 448. 

However, we do not know the rate of interest applicable in the 5th year and hence cannot determine the exact simple interest for 9 years.

Question 4:

What is the difference between compound interest and simple interest for the sum of ` 20,000 over a 2 year period if the compound interest is calculated at 20% and simple interest is calculated at 23%?

Simple interest @ 23% = 4600 × 2 = 9200
Compound interest @ 20%

20000 -20%- 24000 -20%- 28800 Æ ` 8800 compound interest.
Difference = 9200 – 8800 = ` 400.

Question 5:

Find the compound interest on ` 1000 at the rate of 20% per annum for 18 months when interest is compounded half-yearly.

1000 -10%- 1100 -10%- 1210 -10%- 1331.
Compound interest = 1331 – 1000 = ` 331

Time to Think:

What is the simple interest on a sum of `700 if the rate of interest for the first 3 years is 8% per annum and for the last 2 years is 7.5% per annum?