Basic concept of Compound Interest and Compound Interest Questions and Answers are discussed below.

Compound Interest Sometimes it also happens that the borrower and the money lender agree to fix up a certain period, say quarterly or half- yearly or yearly, to resolve the former account.

In such cases, the sum after the initial part of the time becomes the principal for the second unit, the amount after the second unit becomes the principal for the third unit and so on. After a certain period, the difference between the amount and the money borrowed is called the Compound Interest for that period of time.

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.

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