335

Compound Interest

Chapter-18

Compound Interest

K KUNDAN
Introduction

You know that, if Principal = Rs P, Rate = R% per

annum and Time = T (in years), then the Simple
Interest (SI) in Rs is given by

PRT
100
For example, if Principal = Rs 5000 and
rate of interest = 10% per annum, then
SI =

5000 10 1
= Rs 500
SI for 1 year = Rs
100

5000 10 2
= Rs 1000
SI for 2 years = Rs
100

5000 10 3

SI for 3 years = Rs
100

= Rs 1500 and so on.

Clearly, in computing SI the principal remains
constant throughout. But the above method of
computing interest is generally not used in banks,
insurance corporations, post offices and other
money lending and deposit taking companies. They
use a different method for computing interest. In
this method, the borrower and the lender agree to
fix up a certain time interval, say a year or a halfyear or a quarter of a year for the computation of
interest and amount. At the end of first interval
the interest is computed and is added to the original
principal. The amount so obtained is taken as the
pr incipal for the second inter val of time. The
amount of this principal at the end of the second
interval of time is taken as the principal for the
third interval of time and so on. At the end of
certain specified period, the difference between
the amount and the money borrowed ie the original
principal is computed and it is called the compound
interest (abbreviated as CI) for that period. Thus,
we may define the compound interest as follows:
If the borrower and the lender agree to fix up a
certain interval of time (say, a year or a half-year
or a quarter of a year etc) so that the amount ( =
Principal + Interest) at the end of an interval
becomes the principal for the next interval, then
the total interest over all the intervals calculated
in this way is called the compound interest and
is abbreviated as CI.

Clearly, compound interest at the end of certain

specified period is equal to the difference between
the amount at the end of the period and the original
principal ie CI = Amount Principal.

Conversion Period

The fixed interval of time at the end of which the

interest is calculated and added to the principal at
t he beginning of t he inter v al is called t he
conversion period.
In other words, the period at the end of which
the interest is compounded is called the conversion
period.
When the interest is calculated and added to
the principal every six months, the conversion
period is six months. Similarly, the conversion
period is thr ee mont hs when t he int er est is
calculated and added quarterly.
Note: If no conversion period is specified, the
conversion period is taken to be one year.

Computation of Compound Interest

(i) By the method when the interest is
calculated and added to the principal
every interval
For example, the compound interest on Rs 1000
for 2 years at 4% per annum is Rs 81.60. Let us
see. How?
Principal for the first year = Rs 1000
Interest for the first year

K KUNDAN
1000 4 1
= Rs 40
= Rs
100

P R T

Using : Interest
100

Amount at the end of first year

= Rs 1000 + Rs 40 = Rs 1040
Principal for the second year = Rs 1040
Interest for the second year
1040 4 1
= Rs 41.60
= Rs
100

Amount at the end of second year

= Rs 1040 + Rs 41.60
= Rs 1081.60

336

Concept of Arithmetic

Compound interest = Rs (1081.60 Rs 1000)

= Rs 81.60

(ii) By the Formula

We have seen in the above example that it takes a
lot of time to find compound interest. Hence, we
explore below a formula for finding compound
interest.
Let principal be Rs P.
Rate = R%
Time = T years
Interest for first year

R
R

= Rs P 1
100 100
R

= Rs P 1

100

P 1
becomes a common factor
100

K KUNDAN
P R 1
PR
= Rs

= Rs
100

100
Principal for second year

= Rs P 1
100

CI (Compound Interest) for T years

R
PR

= Rs P 1

= Rs P + Rs
100
100

Interest for second year

= Rs P 1
100

Rs P

R
= Rs P 1 100 1

P 1 100 R 1

= Rs
100

Thus, we get the formula for finding the amount

in case of compound interest as

PR
R
1

100
100
Amount at the end of second year or principal
for third year
= Rs

R
PR
R

+ Rs
1

= Rs P 1
100
100
100

Rate

A = P 1
100

Time

Now, we solve the above example, by using the

above formula

A = Rs 1000 1
100

R
R

= Rs P 1
100
100

= Rs P 1
100

Proceeding in the same manner, amount at the

end of T years

1000 104 104

= Rs 1081.60
= Rs
100 100

CI = Rs 1081.60 Rs 1000 = Rs 81.60

P 1 100 becomes a common factor

Computation of Compound Interest when

Interest is Compounded Half-Yearly or
Quarterly

K KUNDAN
Interest for the third year

P 1
R 1
100

= Rs

100

= Rs

PR
R
1

100
100

Amount at the end of third year

= Rs P 1
100

+ Rs

PR
100

100

In compound interest, the time from one specified

period to the next is known as the conversion
period as stated earlier. If time is one year, there
is one conversion period a year. If the time is six
months, there are two conversion periods a year.
If t he t ime is t hr ee mont hs, t her e ar e four
conversion periods a year.
As stated earlier the rate of interest is usually
quoted as per cent per annum. Thus when the
interest is calculated :
( i ) quarterly, the rate of interest per conversion
1
period is
of the rate stated yearly.
4
( i i) half-yearly, the interest rate per conversion
period is

1
of the rate stated yearly.
2

337

Compound Interest
For example, we have to find the compound
1
interest on Rs 12000 for 1
years at 16% per
2
annum, interest being compounded (a) quarterly
and (b) half-yearly. We proceed as follows:
(a) Principal = Rs 12000
Rate of Interst = 16% per annum

16
= 4% per quarter
4

Computation of Compound Interest, when

Time is not an Exact Number of Years
Suppose we have to find Compound Interest (CI)
for 2

1
years on a certain sum at a certain rate per
2

1
years will be
2
equal to the Compound Interest for 2 years at the
given rate together with Compound Interest for 1
1
year at
of the given rate. Thus interest for any
2
fraction of a year is the same as the interest for
full year at the rate equal to the same fraction of
the rate.
For example, if we have to find the compound
cent. The Compound Interest for 2

K KUNDAN
Time = 1

1
3

years = 4 = 6 quarters
2
2

A = P 1 100

= Rs 12000 1
100

104

= Rs 12000
100

interest on Rs 25000 at 13% per annum for 2

= Rs 15183.83

CI = Rs 15183.83 Rs 12000
= Rs 3183.83
(b) Principal = Rs 12000
Rate of Interest = 16% per annum

16
8% per half-year
=
2

1
3

Time = 1
years = 2 = 3 half-years
2
2

A = P 1 100
8

= Rs 12000 1
100

12000 108 108 108

100 100 100
= Rs 15116.54
CI = Rs 15116.54 Rs 12000
= Rs 3116.54
Thus, if Principal = P, Time = T years and Rate
= R% per annum
(i) Amount (when int erest compounded
quarterly)
= Rs

1
2

years, we proceed as follows:

Principal = Rs 25000
Rate = 12%
Time = 2

1
years
2
R

A = P 1 100

12

12

25000
1

= Rs

100 100

1
[ Interest for
year at 12%
2
12
6%]
= Interest for 1 year at
2
2

12

= Rs 25000 1 100

100

K KUNDAN
4T

4T

P 1 4
P 1

400

100

(ii) Amount (when interest compounded halfyearly)

R

P 1 2
100

2T

P 1
200

2T

112 112 106

= Rs 25000
100 100 100

= Rs 33241.60
CI = Rs 33241.60 Rs 25000 = Rs 8241.60
Thus, let P be the principal and the rate of
int er est be R% per annum. If t he interest is
compounded annualy but time is the fraction of a
year say 2

1
years, then amount A is given by
2

2 and CI = A P
A = P 1
1
100

100

338

Concept of Arithmetic

Alternative Method
In this method, we calculate Compound Interest
for the exact number of years by the formula and
Simple Interest for the remaining time. And this
Simple Interest should be added to the Compound
Interest.
For example, solve the above example.
Principal = Rs 25000
Rate = 12%

Here, P = Rs 4000,
R1 = 5% per annum and
R2 = 15% per annum.
Amount after 2 years

R
R1

1 2
= P 1
100
100

5
15

= Rs 4000 1
1

100
100

K KUNDAN
1
years
2
Compound Interest for the first 2 years = A P
Time = 2

A = P 1 100

= Rs 4000

12

= Rs 25000 1 100

General Formula for Computing Amount

25000 112 112

= Rs
= Rs 31360
100 100

Compound Interest for the first 2 years

= Rs 31360 Rs 25000 = Rs 6360
For the next year, Rs 31360 will be Principal

Let P be the principal, the rate of interest be R%

per annum and time be T years and the interest is
compounded after each month.
Interest on Rs 100 for 1 year = Rs R
Interest on Rs 100 for x months

x
= Rs
12

Interest on Rs P for x months

1
year
2

31360 12
PRT
2

=
= Rs
100

100

21 23

20 20

= Rs 4830.
Thus, the refrigerator will cost Rs 4830 to Ram
Singh.

Interest for next

1
3

= Rs 4000 1
1

20
20

= Rs 1881.60
Total Compound Interst
= Rs 6360 + Rs 1881.60 = Rs 8241.60

Computation of Compound Interest, when

Interest is Compounded Annually but
Being Different for Different Years

P R x

= Rs
100 12
Amount at the end of x months

Rx

PRx

= P
= P 1 12
100 12
100

This amount is considered as principal for the

next x months.
According to the above,
Amount at the end of next x months
= Principal for the first x months +
Interest of the next x months

K KUNDAN
Let P be the principal and the rate of interest be
R1% for the first year, R2% for second year, R3%
for third year and so on and in the last Rn% for the
nth year. Then the amount A and the compound
interest (CI) at the end of the n years is given by

R
R1
R

1 2 .......1 n and
A = P 1
100
100
100

CI = A P
For example, Ram Singh bought a refrigerator
for Rs 4000 on credit. The rate of interest for the
first year is 5% and of the second year is 15% .
How much will it cost him if he pays the amount
after two years?
To solve this, we proceed as follows:

Rx
Rx

Rx
12

P 1 12
= P 1
100
100 100 12

Rx
Rx
Rx

12 1 12 P 1 12

P
1

100
100

100

339

Compound Interest

(e) If the rate of interest is calculated annually,

then x = 12

Similarly, amount for the next x months

Rx

= P 1 12
100

R 12

Amount = P 1 12

100

Now,

12

12T
12

= P 1
100

Thus, we can conclude that the above formula

is the General Formula and it is very useful in
computing Amount (Principal + Compound Interest)
and Compound Interest, whether rate is calculated
quarterly, four-monthly, half-yearly, nine-monthly
etc.
For example, to find the Compound Interest on

Number of x months in 1 year = x

K KUNDAN
Number of x months in T years =

12T
x

Rx

Amount (A) for T years = P 1 12

100

12T
x

(a) If the rate of interest is calculated quarterly,

then x = 3

R3

Amount = P 1 12

100

12T
3

= P 1 4

100

4T

12T
6

P 1 2
=
100

2T

(c) If the rate of interest is calculated ninemonthly, then x = 9

R9

12

P
1

Amount =

100

12T
9

3R

P
1

=
100

T = 1

1
5
=
and
4
4

x = 5

(b) If the rate of interest is calculated halfyearly, then x = 6

R6

Amount = P 1 12

100

1
years at 12% per annum, interest
4
being compounded five-monthly, we proceed as
follows:
Here, P = Rs 8000,
R = 12%,
Rs 12000 for 1

4T
3

Rx

12
Amount (A) = P 1 100

12T
x

12 5

12

8000
1

= Rs

100

125
45

= Rs 8000 1
100

K KUNDAN
(d) If the rate of interest is calculated fourmonthly, then x = 4

R4

Amount = P 1 12

100

12T
4

= P 1 3

100

3T

21 21 21

= Rs 8000

20 20 20

= Rs 9261
Compound Interest = Rs 9261 Rs 8000
= Rs 1261

340

Concept of Arithmetic

Solved Examples
Ex. 1:

Soln:

Find the com pound i nt er est on Rs

12000 for 3 years at 10% per annum
compounded annually.
We know that the amount A at the end of
T years at the rate of R% per annum when
the interest is compounded annually is
given by

25

= Rs 64000 1
1000

= Rs 64000 1
40

K KUNDAN
R

A = P 1
100

41

= Rs 64000
40

Here, P = Rs 12000, R = 10% per annum

and T = 3 years

Amount A after 3 years = P 1

100
10

= Rs 12000 1
100

= Rs 12000 1
10
11

= Rs 12000
10

= Rs 64000

Ex. 3:

Soln:

11 11 11

10 10 10
= Rs (12 11 11 11)
= Rs 15972
Now,
Compound Interest = A P
Compound Interest
= Rs 15972 Rs 12000
= Rs 3972.
Vij ay obt ai ns a l oan of Rs 64000
against his fixed deposits. If the rate
of interest be 2.5 paise per rupee per
annum, calculate the compound interest
payable after 3 years.
Here, P = Rs 64000, T = 3 years, and
R = 2.5 paise per rupee per annum
= (2.5 100) paise per hundred rupees
per annum

Ex. 2:

41 41 41

40 40 40

= Rs 68921
Hence, compound interest payable after 3
years = Rs 68921 - Rs 64000 = Rs 4921.
Find the compound interest at the rate
of 10% per annum for four years on
the principal which in four years at the
rate of 4% per annum gives Rs 1600
as simple interest.
Let Rs P be the principal.
This principal gives Rs 1600 as SI in four
years at the rate of 4% per annum.
P =

= Rs 12000

SI 100
RT

1600 100
= Rs 10000
4 4
Now, we have P = Rs 100000
R = 10% and T = 4.
or, P = Rs

Amount after 4 years = P 1

100

10

= Rs 10000 1
100

K KUNDAN
Soln:

=
=

= Rs 10000 1
10

11

= Rs 10000
10

2.5 100
per hundred rupees
Rs
100

per annum
2.5% per annum.

Amount A after 3 years = P 1

100
2.5

= Rs 64000 1
100

= Rs 10000

Ex. 4:

Soln:

11 11 11 11

10 10 10 10

= Rs 14641.
Compound interest
= Rs 14641 Rs 10000
= Rs 4641.
Compute the compound interest on Rs
12000 for 2 years at 20% per annum
when compounded half-yearly.
Here, Principal P = Rs 12000,

341

Compound Interest
Soln:

Rate = R = 20% per annum

20
= 10% per half-year
2
T = 2 years = 2 2 = 4 half-years
=

Here, Principal = P = Rs 320000

Rate = R = 20% per annum

20
= 5% per quarters
4
T = 1 year = 1 4 = 4 quarters
=

A = P 1 100

Amount (A) after 1 year = P 1

100

10

= Rs 12000 1 100

K KUNDAN
4

320000
1

= Rs
100

= Rs 12000 1 10

320000
1

= Rs
20

11
= Rs 12000 10

21
320000

= Rs
20

11 11 11 11

= Rs 12000
10 10 10 10

320000 21 21 21 21

= Rs
20 20 20 20

= Rs 388962
Compound interest
= Rs 388962 Rs 320000 = Rs 68962.
Alternative Method:

14641
10000
= Rs 17569.20
Compound interest
= Rs 17569.20 Rs 12000
= Rs 5569.20
Alternative Method:
We can solve this question by General
Formula also.
= Rs 12000

Rx

Amount (A) for T years = P 1 12

100

Rx

Amount (A) for T years = P 1 12

100

12T
x

12T
x

Here,
P = Rs 320000
R = 20% per annum
T = 1 year and
x = 3

Here,
P = Rs 12000
R = 20% per annum
T = 2 years and
x = 6

20 3

= Rs 320000 1 12

100

121
3

K KUNDAN

20 6

= Rs 12000 1 12

100

122
6

= Rs 12000 1
10

Ex. 5:

Now, do as the above.

Find the com pound i nt er est on Rs
320000 for one year at the rate of 20%
per annum . I f t he i nt er est i s
compounded quarterly.

= Rs 320000 1
100

Ex. 6:

Soln:

Now, do as the above.

What sum of m oney at com pound
interest will amount to Rs 2249.52 in 3
years, if the rate of interest is 3% for
the first year, 4% for the second year
and 5% for the third year?
The general formula for such question is:
R1
R
R
R

1 2 1 3 ... 1 n
A= P 1
100
100
100
100

342

Concept of Arithmetic
Where A = Amount, P = Principal and R1,
R2, R3, ...., Rn are the rates of interest for
different years.
In the above case,

Compound interest
= Rs (133.10 - 100) = Rs 33.10
Now,
If compound interest is Rs 33.10, principal
= Rs 100
If compound interest is Re 1, principal =

3
4
5

1
1

2249.52 = P 1
100
100 100

2249.52 = P (1.03) (1.04) (1.05)

100
33.10
If compound interest is Rs 331, principal
Rs

2249 .52
P = (1.03) (1.04 ) (1.05 ) = Rs 2000

K KUNDAN
Ex. 7:

24000 at 15% per annum for 2

Soln:

100

331 = Rs 1000
= Rs
33.10

Hence, principal = Rs 1000.

Alternative Method:
Rate = 10% per annum
Time = 3 years
Amount = Rs 331

Find the com pound i nt er est on Rs

1
3

years.
Here, P = Rs 24000
R = 15% per annum and
Time = 2

1
years.
3

A = P 1
1

Amount after 2 3 years

P =

2
R
R

= P 1
1
100
100

Ex. 9:

2
15
15

= Rs 24000 1
1 3
100
100

3
1

= Rs 24000 1
1

20
20

23 21
= Rs 24000

20 20

Soln:

100

A
R

100

331

10

100

331 10 10 10
= Rs 1000
=
11 11 11

What sum will become Rs 9826 in 18

months if the rate of interest is 5%
per annum and t he i nt er est i s
compounded half-yearly?
Let the required sum ie the principal, be
Rs P.
We have,
Principal = Rs P,
Amount = Rs 9826,
R = 5% per annum
=

5
% per half-year and
2

K KUNDAN
Ex. 8:

Soln:

= Rs 33327
Compound interest = Rs (33327 24000)
= Rs 9327.
Find the principal, if the compound
interest compounded annually at the
rate of 10% per annum for three years
is Rs 331.
Let the principal be Rs 100. Then,
Amount after three years
3

10

= Rs 100 1 100

11
= Rs 100 100

= Rs 133.10.

T = 18 months =

18
3
years =
years.
12
2

= 2 3 half-years
2

A = P 1

100

or, 9826 = P 1 2

200

or, 9826 = P 1

80

343

Compound Interest

81

or, 9826 = P
80

80

or, P = 9826
81

or,

882 21

800 20

or,

441 21

400 20

= 9466.54

Hence, required sum = Rs 9466.54.

Alternative Method:
Let the required sum be Rs 100. Then,

21
21

or,
20
20

K KUNDAN
3
years at
2
the rate of 5% compounded half-yearly, is
given by
the amount after 18 months ie

2
5 2

Amount = Rs 100 1 2

200

81

= Rs 100
80

= Rs

531441
5120

Now,

T = 2.
Hence, required time is 2 years.
Ex. 11: In what time will Rs 64000 amount to
Rs 68921 at 5% per annum, interest
being compounded half-yearly?
Soln:
Here, Principal (P) = Rs 64000
Amount (A) = Rs 68921
Rate (R) = 5% per annum.

5
% per half-year
2
Let the time be T years = 2T half-years
Therefore,
=

A = P 1
100

68921 64000 1 2

100

531441
,
5120
then principal = Rs 100
If the amount is Re 1, then principal

or,

100 5120

= Rs
531441
If the amount is Rs 9826, then principal

41
41

or,
40
40

If amount is Rs

100 5120

9826 = Rs 9466.54
= Rs
531441

Hence, required sum = Rs 9466.54.

Ex. 10: In what time Rs 800 amount to Rs 882
at 5% per annum compounded
annually?
Soln:
Here, Amount (A) = Rs 882,
Principal (P) = Rs 800 and
Rate (R) = 5% per annum.

68921
1
1

64000
40
3

2T

2T

2T

or, 2T = 3

3
1
years = 1
years.
2
2
Ex. 12: At what r ate per cent per annum
compound i nt er est wil l Rs 10000
amount to Rs 13310 in three years?
Soln:
Let the rate be R% per annum.
We have, P = Principal = Rs 10000,
A = Amount = Rs 13310 and
T = 3 years.

K KUNDAN

A = P 1

100

or, 882 = 800 1

100
or,

882
1
1

800
20

T =

A = P 1 100
R

or, 13310 10000 1

100

or,

13310
R
1

10000
100

344

Concept of Arithmetic

or,

or,

1331
R
1

1000 100
113
10 3

100

or,

11
R
1
10
200

or,

R
11
1

1
200 10
10

R =

R
11

or, 1
100 10

200
= 20%
10

Hence, the rate of interest

= 20% per annum.
Ex. 14: Determine the rate of interest for a sum

K KUNDAN
R
11

1
or,
100 10
or,

R
1

100 10

100
= 10
10
Hence, rate = 10% per annum.
Ex. 13: Nikhil invested Rs 6000 in a company
at com pound i nter est compounded
semi-annual ly. He recei ves Rs 7986
after 18 months from the company.
Find the rate of interest per annum.
Soln:
We have, P = Principal = Rs 6000
A = Amount = Rs 7986 and
or, R =

T = 18 months =

R
% per half-year.
2
(Since the interest is compounded semiannually)
=

A = P 1 100

Soln:

years must become

216
R

P P 1

125
100

or,

216
R
1

125 100
3

R
6

or, 1
5
100
or,

6
R
1
5
100

or,

R
6
1
100 5

216
P. Therefore,
125

Using A P 1

100

3
years.
2

= 2 3 half-years
2

Let the rate of interest be R% per annum

216
times of itself in 3
125
years, compounded annually.
Let the principal be Rs P and the rate of
interest be R% per annum compounded
annually.
It is given that the amount at the end of 3
that becomes

K KUNDAN
R

or, 7986 6000 1 2

100

or, 7986 6000 1

200

or,

7986
R
1

6000
200

or,

1331
R
1

1000
200
3

R
11

or,
200
10

R
1

100 5
or, R = 20
Hence, the rate of interest is 20% per
annum.
Ex. 15: The difference between the compound
interest and simple interest on a certain
sum of money at 10% per annum for 2
years is Rs 500. Find the sum when
the interest is compounded annually.
Soln:
Let the sum be Rs 100.
Computation of compound interest: We
have, Principal = Rs 100,
R = 10% per annum, and
T = 2.
or,

345

Compound Interest
2

10

Amount = Rs 100 1 100

11
= Rs 100 10

15

or, 2 1
100

Putting A 2P and T 15 in

T
R

P
1

100

= Rs 121.

CI = Rs 121 Rs 100 = Rs 21.

Computation of simple interest : We have,
Principal = Rs 100, R = 10% and
Time = 2 years.

....(i)

Suppose the money becomes 8 times ie

8P in T years. Then,

K KUNDAN
100 10 2
= Rs 20.
SI = Rs
100

Thus, Difference in CI and SI

= Rs (21 20) = Re 1
Now,
If difference between CI and SI is Re 1,
Sum = Rs 100
If difference between CI and SI is Rs
500, Sum = Rs (100 500) = Rs 50000.
Alternative Method:
Let the sum be Rs P.

PRT
Simple Interest =
100
P 10 2
P
= Rs
=
100
5
Compound Interest = Amount Principal
2

10

= Rs P 1 100 P

11

= Rs P 10 P

P 11 11

P
= Rs
10 10

21P

= Rs
100
Now, according to the question,

8P P 1

100

or, 8 1
100

or, 2 1
100

15
T

R
R

or, 1
100
100

[Using (i)]
45

R
R

or, 1
100
100
or, T = 45
Hence, the money will become 8 times in
45 years.
Ex. 17: A farmer wants to divide Rs 390300
between his two daughters who are 16
years and 18 years old respectively in
such a way that the sum invested at
the rate of 4% per annum, compounded
annually will give the same amount to
each, when they attain the age of 21
years. How should he divide the sum?
Soln:
Suppose the farmer gives Rs P to 16 years
old daughter and the remaining Rs
(390300 P) to 18 years old daughter.
At the age of 21 years, each daughter gets
the same amount. This means that the
amount of Rs P invested for 5 years is
same as the amount of Rs (390300 P)
invested for 3 years ie

K KUNDAN
21P P

= Rs 500
100 5

21P - 20P
= Rs 500
100
P = Rs (500 100) = Rs 50000
Ex. 16: A sum of money doubl es i t sel f at
compound interest in 15 years. In how
many years will it become eight times?
Soln:
Let the sum of money be Rs P invested at
the rate of R% per annum. It is given that
the money doubles itself in 15 year s.
Therefore,
or,

15

2P P 1

100

4
4

P 1
390300 P 1

100
100

390300 P
or, P 1
100

390300 P
or, P 1
25

26
390300 P
or, P
25
26 2

or, P 25 1 390300

346

Concept of Arithmetic
676 625
or, P
390300
625

9680 P 1

100

1301
or, P
390300
625

390300 625
or, P =
= 187500
1301
Therefore, the daughter aged 16 years gets
Rs 187500 and the daughter aged 18 years
gets Rs (390300 187500) = Rs 202800.
Alternative Method:
Let the equal amount in each case be Rs
100 and P1, P2 be the principals for the
two daughters.
In case of the first daughter,
A = Rs 100, T = 5 years, R = 4%

...(i) and

10648 P 1

100

...(ii)

Now, dividing equation (ii) by equation (i),

we have
3

P 1

10648
100

2
9680
R

P 1

100

K KUNDAN
5

26
P1

100 P1 1
100

25
or, P1

100
26

25

100 (25 )5

100
3

R
10648

1
100
9680

or,

R
968

100 9680

25
100

26

100 (25)5
(26)5

968
100 = 10
9680
2

, we
Putting R = 10 in 9680 P 1
100

get

10

9680 P 1

100

or, 9680 P 1
10

Ratio between their parts is

P1 : P2 =

or,

or, R =

100 P2 1
100

26

25

10648
R
1
9680
100

(26)5

In case of the second daughter,

A = Rs 100, T = 3 years, R = 5%

or, P2

or,

25
: 100

26

25
:1
=
26

11

or, 9680 P
10

10

or, P = 9680
11

100
= 8000
121
Hence, principal = Rs 8000 and rate of
interest = 10% per annum.
Ex. 19: A sum of money is put at compound
interest for 2 years at 20% per annum.
I t would fet ch Rs 482 m or e, if the
interest were payable half-yearly than
if it were payable yearly. Find the sum.
Soln:
Let t he r equired sum of money be
Rs P.
Case I: When interest is payable yearly.
In this case, let the amount be A1. Then,
or, P = 9680

K KUNDAN
= 252 : 262 = 625 : 676
We shall divide Rs 390300 in the ratio
of 625 : 676
Daughter aged 16 years old gets
390300

625
Rs
625 676

390300 625
= Rs
= Rs 187500
1301
and the daughter aged 18 years old gets
= Rs (390300 187500) = Rs 202800.
Ex. 18: A sum amounts to Rs 9680 in 2 years
and to Rs 10648 in 3 years compounded
annually. Find the sum (principal) and
the rate of interest per annum.
Soln:
Let the sum (principal) be Rs P and the
rate of interest be R% per annum. Then,

20
36P

6
A1 P 1
P
25P
100
5
Case II: When interest is payable halfyearly.

347

Compound Interest
In this case, Principal = P,
R = 20% per annum

20
= 10% per half-year
2
T = 2 years = 2 2 = 4 half-years
Let A2 be the amount at the end of 2 years.
Th en ,
=

A 2 P 1

100

R
or, 110 P 1 100 1 and PR = 5000

2R
R2
or, 110 P 1 100 10000 1 and

PR = 5000

or, 110

2PR
PR 2

and PR = 5000
100 10000

or, 110

PR
PR

R and PR = 5000
50 10000

K KUNDAN
10

or, A 2 P 1
100

11

or, A 2 P
10

It is given that A2 A1= 482

4

11
6
P 482
or, P
10
5
4

11
6
or, P 10 5

5000 5000

R
50
10000
[Putting PR = 5000]
R
or, 110 = 100 +
2
or, 110

11
12
or, P 10 10

11 2 12

or, P 10 10

R
2
or, R = 20.
Putting R = 20 in PR = 5000, we get 20P
= 5000
P = 250.
Hence, principal = Rs 250 and rate
= 20% per annum.
Alternative Method:
Difference between Compound Interest
and Simple Interest
= Rs 110 Rs 100 = Rs 10
Simple Interest for 2 years = Rs 100
100
Simple Interest for 1 year = Rs
2
= Rs 50
Because inter est is r eckoned year ly
Compound Int erest and t he Simple
Interest for the first year will be the same.
Rs 10 is the interest on Rs 50 for 1
year.
Principal = Rs 50, T = 1 year and
SI = Rs 10
or, 10 =

482

482

11 2 12

482

10
10

241 1

482
or, P
100 100

482 100 100

= 20000
241
Hence, the sum of money was Rs 20000.
Ex. 20: Reena borrowed from Kamal certain
sum for two years at simple interest.
Reena lent this sum to Hamid at the
same rate for two years at compound
interest. At the end of two years she
received Rs 110 as compound interest
but paid Rs 100 as simple interest. Find
the sum and rate of interest.
Soln:
Let the principal be Rs P and the rate of
interest be R% per annum.
We have, CI = Rs 110, SI = Rs 100 and
Time = 2 years.
P =

K KUNDAN
2

P and
110 P 1
100

PR2
100
100
2

PR
R
1 and 100
or, 110 P 1
50
100

Rate =

SI 100
10 100
=
PT
50 1

= 20% per annum

Now, SI = Rs 100, R = 20% and
T = 2 years
P =

SI 100
100 100
= Rs 250
=
RT
20 2

Hence, principal = Rs 250 and

rate = 20% per annum.
Ex. 21: The simple interest on a sum at 4% per
annum for 2 years is Rs 80. Find the
compound interest on the same sum for
the same period.

348
Soln:

Concept of Arithmetic
Let the sum be Rs P.
PRT
SI =
100

Now, 1
100

SI 100
80 100
P = RT
=
= Rs 1000
2 4

or, 1
100

43

12

125
5

64
4

125 75 9375

64 75
4800
12

P
CI = P 1
100

or, 4800 1
100

9375

K KUNDAN
2

= Rs 1000 1 100 1000

The above equation shows that Rs 4800

becomes Rs 9375 after 12 years.
Ex. 24: Find the present value of Rs 40960 due

1000 26 26

1000
= Rs
25 25

676

1
= Rs 1000
625

1000 51
= Rs 81.6
625
Ex. 22: The compound interest on a certain sum
of money for 2 years at 10% per annum
is Rs 420. Find the simple interest at
the same rate and for the same time.
Soln:
Let the sum be Rs P.
= Rs

CI = P 1 100 P

10

P
or, 420 P 1
100
11 11
P
or, 420 P
10 10
or, 420

P =

21
P
100

420 100
= Rs 2000
21

3 year s hence at 6

2
% per annum
3

compound interest.

Soln:

20

Present value 1
3 100

Present value = Rs

= Rs 40960

40960
20

3 100

15 15 15

= Rs 40960

16 16 16

= Rs 33750
Ex. 25: What annual payment will discharge a
debt of Rs 8116 due in 3 years at 8%
per annum compound interest?
Soln:
Let Rs x be the amount of each instalment.
Then the instalments of Rs x are paid at
the end of 1 year, 2 years and 3 years
respectively.
Present values of these instalments are

2 and
3

8 ,
8
8

1
1

1 100
100

100

Total present value of these instalments

K KUNDAN
Simple Interest =

PRT
100

2000 10 2

= Rs
100

= Rs 400
Ex. 23: Rs 4800 becomes Rs 6000 in 4 years
at a certain rate of compound interest.
What will be the sum after 12 years?
Soln:
Let the rate of interest be R%.
Now, we have

25 625 15625
50725x
= Rs x

= Rs 19683
27 729 19683

Also, present value of Rs 8116 due 3 years

hence

8116

3
= Rs
8
1 100

8116 15625

= Rs
19683

4800 1
6000
100
4

R
6000 5

or, 1
4800
4
100

50725x
8116 15625
=
19683
19683
x = Rs 2500

349

Compound Interest

Practice Exercise
1.

2.

Abhay lent Rs 8000 to his friend for 3 years at

the rate of 5% per annum compound interest.
What amount does Abhay get after 3 years?
Find the compound interest on Rs 1000 at
the rate of 10% per annum for 18 months
when interest is compounded half-yearly.
What will be compound interest of Rs 24000
1
for 2
years at the rate of 15% per annum?
3
Ramesh deposited Rs 7500 in a bank which
pays him 12% int er est per annum
compounded quarterly. What is the amount
which he receives after 9 months?
At what rate per cent per annum of compound
interest will Rs 1600 amount to Rs 1852.20
in 3 years?
Find the sum of money which will amount to
Rs 26010 in 6 months at the rate of 8% per
annum when the interest is compounded
quarterly.
Govardhan deposited Rs 7500 in a bank for 6
months at the rate of 8% per annum, interest
compounded quarterly. Find the amount he
received after 6 months.
A certain sum invested at 4% per annum
compounded semi-annually amounts to Rs
7803 at the end of one-year. Find the sum.
Rs 16000 inv ested at 10% per annum
compounded semi-annually amounts to Rs
18522. Find the time period of investment.
The dif f erence in simple and compound
interest on a certain sum for 2 years at 5%
per annum compounded annually is Rs 75.
Find the sum.
The simple interest on a sum of money at
some rat e for 3 years is Rs 225 and t he
compound interest on the same sum of money
and at the same rate for 2 years is Rs 153.
Find the sum and the rate per cent per annum.
A principal sum of money is lent out at
compound interest compounded annually at
the rate of 20% per annum for 2 years. It
would give Rs 2410 more if the interest is
compounded half-yearly. Find the principal
sum.
A money-lender borrows a certain sum of
money at 3% per annum simple interest and
lends it at 6% per annum compound interest
compounded half-yearly. If he gains Rs 618
in a year, find the sum of money borrowed by
him.
The compound interest on a certain sum of
money for 2 years at 5% per annum is Rs
102.50. What will be the compound interest
on the same sum of money for the same period
at 4% per annum.

15. Two partners A and B together lend Rs 2523

at 5% compound int er est compounded
annually. The amount A gets at the end of 3
years is the same as B gets at the end of 5
years. Determine the share of each.
16. Two partners A and B together lends Rs 84100
at 5% compound int er est compounded
annually. The amount which A gets at the
end of 3 years is the same as what B gets at
the end of 5 years. Determine the ratio of the
shares of A and B.
17. A sum of money put at compound interest
amounts to Rs 8820 in two years and to Rs
9261 in three years. Find the sum and the
annual rate of interest.
18. Find the present value of Rs 4913 due 3 years
1
hence at 6 % per annum compound interest.
4
19. A person borrowed Rs 4000 at 5% per annum
compound interest compounded annually.
After 2 years, he repaid Rs 2210 and then
after 2 more years, he repaid the balance with
interest. Find the total interest paid by him.
2 0 . A sum of money lent out at compound interest
increases in value by 50% in 5 years. A person
wants to lend three different sums of money
X, Y and Z for 10, 15 and 20 years respectively
at the above rate in such a way that he gets
back equal sums of money at the end of their
respective periods. Find the value of X : Y : Z.
21. A person closes his account in a bank by
withdrawing Rs 110000. One year earlier,
he had withdr awn Rs 65000. Two year s
earlier, he had withdrawn Rs 125000. How
much money had he deposited in the bank at
the time of opening the account three years
ago if t he annual interest r at e was 10%
compounded annually?
2 2 . Compound interest and simple interest on a
certain sum for 2 years are Rs 104 and Rs
100 respectively. Find the rate per cent and
the principal.
23. The difference between compound and simple
interests on a certain sum of money at the
1
interest rate of 10% per annum for 1
years
2
is Rs 183, when the interest is compounded
semi-annually. Find the sum of money.
24. In how many years will a sum of Rs 800 at
10% per annum compound inter est ,
compounded semi-annually, becomes Rs
926.10.
25. If the difference between compound interest,
compounded half-yearly and simple interest
on a sum of money at 8% per annum for 1
year is Rs 30. Find the sum.

K KUNDAN
3.

4.

5.

6.

7.

8.

9.

10.

11.

K KUNDAN
12.

13.

14.

350

Concept of Arithmetic

Answers and explanations

1.

Here, P = Rs 8000, R = 5% per annum and R

= 3 years.

Amount after 3 years = P 1

100

3.

Here, Principal (P) = Rs 24000

Rate (R) = 15%

Time (T) = 2

1
years
3

3
P
1

A =
100 100

K KUNDAN
5

= Rs 8000 1
100

1
= Rs 8000 1

20

21

= Rs 8000
20

21 21 21
= Rs 9261.

20 20 20
Thus, Abhay gets Rs 9261 at the end of 3
years.
Here, P = Rs 1000,
R = 10% per annum
= Rs 8000

2.

10
% = 5% per half-year
2

18 3

T = 18 months =
years
12 2
3

= 2 3 half-years
2

Now, from the formula

A = P 1

100

= Rs 1000 1
100

15

15

1 3
= 24000 1
100 100

23 21

= 24000
20 20

23 23 21

= Rs 33327
20 20 20
Compound Interest = Rs 33327 Rs 24000
= Rs 9327
Alternative Method:
Principal (P) = Rs 24000
Rate (R) = 15%
= 24000

1
years
3
Compound Interest for the first 2 years
= Amount Principal
Time (T) = 2

A = P 1
100

15

= Rs 24000 1

100

K KUNDAN
3

= Rs 1000 1
20

21
= Rs 1000

20

1000 21 21 21
= Rs

20 20 20

= Rs 1157.625
Hence,
Compound Interest = Amount Principal
= Rs 1157.625 Rs 1000
= Rs 157.625

24000 23 23
= Rs 31740
= Rs
20 20

Compound Interest for the first 2 years

= Rs 31740 Rs 24000 = Rs 7740
For the next year Rs 31740 will be principal
Interest for next

1
years
3

31740 15 1
PRT
= Rs 1587
= Rs
3 100
100

Total Compound Interest

= Rs 7740 + Rs 1587
= Rs 9327

351

Compound Interest
4.

Here, Principal = Rs 7500

Rate = 12% per annum

12
=
3% per quarter and
4
9 3

Time = 9 months =
year
12 4

P =

100

26010
= Rs
2
1 2

100

26010 50 50
= Rs 25000
= Rs
51 51

= 4 3 quarters
4

K KUNDAN
R

A = P 1

100

7.

6 1

Time (T) = 6 months =

year
12 2

Amount after 9 months

= Rs 7500 1 100

5.

= 1 4 2 quarters
2

Rate (R) = 8% per annum

7500 103 103 103

= Rs
100 100 100
= Rs 8195.45
Let the rate be R% per annum.
We have
Principal (P) = Rs 1600
Amount (A) = Rs 1852.20 and
Time (T) = 3 years
R

A = P 1
100

or, 1

8
= 2% per quarter
4

Amount = P 1

1852.20
= 1.157625 = (1.05)3
1600

7500 51 51
= Rs 7803
= Rs
50 50

8.

R
= (1.05 1) = 0.05
100
R = 0.05 100 = 5%
Here, Amount (A) = Rs 26010
Rate (R) = 8% per annum
or,

51

= Rs 7500 50

R
= 1.05
100

100

= Rs 7500 1 100

or, 1852.20 = 1600 1

100

or, 1
100

Principal (P) = Rs 7500

A = Rs 7803
R = 4% per annum

4
= 2% per half-year
2
T = 1 year = (1 2 =) 2 half-years
(Since t he interest is compounded semiannually)

K KUNDAN
6.

8
= 2% per quarter
4

A = P 1

6 1

Time (T) = 6 months =

year
12 2

P =
= 1 4 2 quarters
2

Now,
T

;
A = P 1
100

where P = Principal or required sum

100

A
R

100

7803
= Rs
2
1 2

100

7803 50 50
= Rs
= Rs 7500
51 51

Thus, the sum invested is Rs 7500.

352
9.

Concept of Arithmetic
We have, Principal (P) = Rs 16000
Amount (A) = Rs 18522
Rate (R) = 10% per annum
= 10 5% per half-year
2
Let the time be T years = (2 T) half-years
Now,

A = P 1
100

Difference in CI and SI =

41x
x

400 10

41x 40 x
x

400
400
But it is given that the difference of CI and SI
is Rs 75.
=

x
75
400
or, x = 75 400 = Rs 30000.
The sum is Rs 30000.
11. Simple interest for 3 years is Rs 225

K KUNDAN
5

or, 18522 16000 1

100

2T

Simple interest for 1 year is

or,

or,

18522 21

16000 20
9261 21

8000 20
3

2T

2T

21
21

or,
20
20

2T

or, 2T = 3

3
1
= 1
years
2
2
Therefore, time period of investment is oneand-a-half year.
10. Let the sum be Rs x
Simple interest on Rs x for 2 years at 5%
T =

x 2 5
x
= Rs
100
10

Time

Rate
1
Compound Interest = P 1

100

Compound interest on Rs x for 2 years at

5%

Simple interest for 2 years is

225
= Rs 75
3
225
2
3

= Rs 150
and, compound interest for 2 years is Rs 153.
Difference between compound interest and
simple interest for 2 years = 153 150 = Rs 3.
As we know t hat, diff er ence bet ween
compound interest and simple interest for 2
years = Interest on simple interest for 1 year.
Let the rate of interest be R%.
Then,

and

75 R
3 or R = 4%
100

PR
P4
75 or
75
100
100

75 100
= Rs 1875
4
Sum = Rs 1875 and rate per cent = 4% per
annum.
12. Let the sum be Rs P.
Compound interest when it is compounded
annually,
or, P =

K KUNDAN
2

= x 1 100 1

21 2

= x 20 1

441
1
= x
400

x 441 400
400

41x
=
400

20

P
= P 1
100

Compound interest when it is compounded

half-yearly,

20

2
= P 1

100

22

10

P
= P 1
100

Now, according to the question, we have

4
2

10
20
P 1
P P 1
P = 2410
100
100

353

Compound Interest
4

or, P 1 10 P 1 20
100
100

= 2410

4
2

10
20

or, P 1
1
= 2410
100
100

11 4 12 2
or, P

= 2410
10
10

10609
1
= Rs P
10000

609P
10000
Now, according to the question,
= Rs

3P
609P

= Rs 618
10000 100

K KUNDAN
2

2
2
12
11
= 2410
or, P
10
10

11 2 12 11 2 12

or, P



= 2410
10
10 10
10

or, P 121 12 121 12 = 2410

100
10
100
10

1
241
or, P

= 2410
100
100

or, 309P = Rs (618 10000)

P = Rs 20000
14. Let the principal be Rs P. Then,
Compound Interest
2

= Rs P 1
P
100

21
= Rs P
P
20
2

2410 100 100

= 100000
241
Hence, the required sum = Rs 100000
13. Let the required sum of money be Rs P.
or, P =

Case I: Simple Interest =

609P - 300P
= Rs 618
or,
10000

PRT
100

P 3 1
3P
= Rs

= Rs
100
100
Case II: Compound Interest
= Amount Principal

441
= Rs P
P
400

41P
400
Now, according to the question,
= Rs

41P
= Rs 102.50
400

102.50 400
= Rs 1000
or, P = Rs
41

Now,

K KUNDAN
T

P
= P 1
100

Here, R = 6% per annum

6
= 3% per half-year
2

T = 1 year = 2 half-years
(Since the interest is compounded half-yearly)
Compound Interest
2

3
P
= Rs P 1
100

103 2

P
= Rs P
100

4
1
Compound Interest = Rs 1000 1
100

26 2
= Rs 1000
1
25

676

1
= Rs 1000
625

676 - 625
= Rs 1000

625
= Rs 1000
= Rs 81.60

51
625

354

Concept of Arithmetic

15. Let the share of A be Rs x and share of B be

Rs (2523 x).
According to the question,
Amount received by A after 3 years at 5%
interest
3

21
x 1
x

100

20

21

x
20

or,
y 21 3

20
2

Similarly, amount received by B after 5 years

or,

x 21
441

y 20
400

K KUNDAN
5

= 2523 x 1
100

21

= 2523 x
20

The required ratio = 441 : 400.

17. Let the Principal be Rs P and the rate be R%
per annum.

8820 P1

100

......... (i)

Again, according to the question,

3

21
21
x
2523 x

20
20

and 9261 P 1
100

Now, equation (ii)

9261
R
1
8820
100

21

x
20

or,
2523 x 21 3

20

or,

or,

......... (ii)
equation (i) gives

R
441

100 8820

441 100
= 5
8820
R = 5%
Using equation (i)
or, R =

2523 x

441
21

400
20

or, 400x 2523 441 441x

21
8820 P 1

P
100

20

or, 400x 441x 2523 441

or, 841x 2523 441

2523 441
1323
841
The share of A = Rs 1323
The share of B = Rs 2523 1323 = Rs 1200
16. Solve as the Q.No. 15. Try yourself.
Alternative Method:
Let the amount lent by A be Rs x and amount
lent by B be Rs y.
Now, according to the question,
Amount received by A after 3 years at 5%
interest
or, x =

441
P
400
or, P = Rs 8000
Principal = Rs 8000 and Rate = 5%
18. We know that
or, 8820

A P 1

100

K KUNDAN
5

= x 1
100

21

= x
20

[where P is the present worth]

Similarly, amount received by B after 5 years

at 5% interest

= y 1
100

21

= y
20

25

or, 4913 P 1

400

Again, according to the question,

21
21
x
y

20
20

25

or, 4913 P 1 4 ;

100

4913 4913

or, P =
3
3
1 1 17

16 16

355

Compound Interest
4913 16 16 16
= 4096
17 17 17
Hence the present worth is Rs 4096.
19. After 2 years amount at CI
or, P =

5
1

4000 1

= 4000 1
100
20

Suppose X

3Y 9Z

k
2
4
2
4
k and Z =
k
3
9

X = k, Y =

21 21

= Rs 4410
20 20
After 2 years the person repaid Rs 2210,
hence the amount borrowed
= Rs (4410 2210) = Rs 2200
Now, compound interest on Rs 2200 for 2
years at 5% per annum is

X : Y : Z = k:

2
4
k: k
3
9

K KUNDAN
= 4000

2200
Rs 2200 1
100

21 21

2200
= Rs 2200
20 20

= Rs (2425.50 2200)
= Rs 225.50
Total interest paid by him
= Rs (225.50 + 410) = Rs 635.50
2 0 . Rate of interest = 50% in 5 years
Now, according to the question,
X is lent for 10 years, Y for 15 years and Z for
20 years.

X
3X
X
2
2
This becomes the principal for next years and
after 10 years the X will be
After 5 years X becomes =

3 3X 3

X
2 2 2

Similarly, after 15 years Y will be

3

3 3 3 3
Y
2 2 2 2

2 4
:
3 9
X : Y : Z = 9 : 6 : 4
(multiplying each term by 9)
21. The person withdraws Rs 110000.
One year earlier the person had
or, X : Y : Z = 1 :

10

100000
Rs 110000
11

Two years earlier the person had

10
= Rs 150000
11
At the time of opening the account, the person
had
(100000 65000)

10
= Rs 250000
11
2 2 . Difference between CI and SI
= Rs 104 Rs 100 = Rs 4
SI for 2 years = Rs 100
(150000 125000)

100
= Rs 50
2
Because interest is reckoned yearly, CI and
SI for the first year will be the same.
Rs 4 is the interest on Rs 50 for 1 year.
Principal = Rs 50, T = 1 year and
SI = Rs 4
SI for 1 year = Rs

4 100
% = 8%
50 1
Now, SI = Rs 100

R = 8% and
T = 2 years
Rate =

K KUNDAN
and after 20 years Z will be
4

3 3 3 3
3
Z Z
2 2 2 2
2

Now, according to the question,

2

3
3
3
X Y Z
2
2
2

9X 27Y 81Z

or,
4
8
16
(dividing each term by

100 100
= Rs 625
P = Rs
82

23. Let the principal be Rs P.

Rate = R = 10% per annum
=

Time = T = 1

9
)
4
=

or, X

3Y 9Z

2
4

10
= 5% per half-year
2

1
3
years =
years
2
2

3
2 = 3 half-years
2

356

Concept of Arithmetic
T

Compound Interest (CI) = A = P 1

P
100

R
1
or, CI = P 1
100

5
1
= P 1
100

or, 926.10 = 800 1

100

or,

926.10
1

= 1
20
800

or,

9261
21

=
8000
10

2T

2T

2T

K KUNDAN
21

or,
10

9261
- 1
= P
8000

21

=
10

2T

or, 2T = 3

1261
and
= Rs P
8000

PRT
SI =
=
100

P 10

3
2

100

T =

3P
= Rs
20

Now, according to the question,

1261P 3P

= Rs 183
8000
20
or,

3
1
1
2
2

1
years.
2
25. Let the sum of money be Rs P and rate of
interest = 8% per annum.
Rate of interest compounded half-yearly = 4%
Difference between CI and SI
Hence the required time = 1

2

PR2
R

= P 1 100 1 100

1261P 1200P
= Rs 183
8000

183 8000
= Rs 24000
or, P = Rs
61

2R R
2R
1
P

=
100
100 100

required sum = Rs 24000

24. Here, principal (P) = Rs 800
Rate (R) = 10% per annum

10
= 5% per half-year
2
Amount (A) = Rs 926.10
Let the time be T years.
Time = 2T half-years

= P
100

Rate

Amount = Principal 1

100

Time

or, Rs 30 = P
100

P 1
625
P = Rs (30 625) = Rs 18750
or, Rs 30 =

K KUNDAN