Basic concept of Compound Interest and Compound Interest Questions with Answers are provided here to help the students understand the applications of compound interest in our daily existence.
Definition Compound InterestCompound interest is the interest calculated on the principal and the interest accumulated over the previous period. It is different from simple interest, where interest is not added to the principal while calculating the interest during the next period.
Important Formulae to solve Compound Interest Questions :
P [1+ \frac{R}{100}]^{T}
This formula is applied to calculate when money is compounded annually.
P [1+ \frac{R}{2\times 100}]^{2T}
This formula is applied to calculate when money is compounded half-yearly
P [1+ \frac{R}{12\times 100}]^{12T}
This formula is applied when money in compounded monthly.
Situations where we can use Compound Interest formulas.
Increase or decrease in population
The growth of a bacteria (when the rate of growth is known)
The value of an item, if its price increases or decreases in the intermediate years
Compound Interest Questions and Answers
Example 1:
The compound interest on Rs. 10,000 in 2 years at 4% per annum, the interest being compounded yearly, is
Options:
a. Rs 636.80 b. Rs 816 c. Rs 912 d. Rs 882.82
Explanation:
Rate of interest = 4%
Therefore, applying the net% effect formula for effective rate of compound interest for 2 years , we get
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