**Dear aspirants, We are going to share Simple Interest and Compound Interest tricks and shortcuts.****Simple Interest and Compound Interest are the most famous topic of any bank exams especially IBPS PO SO & Clerk including SBI and RRB Exam. Since questions are more or less similar to the coaching done these questions take the least time and have a accuracy rate of 90-100%. The key to solving simple and compound interest questions is to remember the formulas, understand the question and apply the relevant formula and get the correct answer.**

The cost of borrowing money is defined as Simple Interest.

**–***It is of two types**or***simple interest****.***compound interest**whereas***Simple interest(SI) is calculated only on the principal (P)****i.e.***Compound interest(CI) is calculated on the principal and also on the accumulated interest of previous periods***“interest on interest.”**This compounding effect makes a big difference in the amount of interest payable on the principal.**Simple interest is:**

Simple Interest = Principal x Interest Rate x Term of the loan(Time of Loan)

SI = P x i x n/100 when interest rate is taken in percent.

**Compound Interest**

CI = P [(1 + i)

^{n}– 1]
where P = Principal, i = annual interest rate in percentage terms, and n = number of compounding periods.

__When calculating compound interest, the number of compounding periods makes a significant difference. The basic rule is that the higher the number of compounding periods, the greater the amount of compound interest. So for every INR 100 principal over a certain period of time, the amount of interest accrued at 10% annually will be lower than interest accrued at 5% semi-annually, which will in turn be lower than interest accrued at 2.5% quarterly.__

**Compounding periods :**
In the formula for calculating compound interest, the variables “i”
and “n” have to be adjusted if the number of compounding periods is more
than once a year. That is, “i” has to be divided by the number of
compounding periods per year, and “n” has to be multiplied by the number
of compounding periods. Therefore, for a 10-year loan at 10%, where
interest is compounded semi-annually (number of compounding periods =
2), i = 5% (i.e. 10% / 2) and n = 20 (i.e.10 x 2).

The following table demonstrates the difference that the number of
compounding periods can make over time for a INR 10,000 loan taken for a
10-year period.**Shortcut Trick: Rule of 72**

The Rule of 72 calculates the approximate time over which an
investment will double at a given rate of return or interest “i”, and is
given by (72 / i). It can only be used for annual compounding.

For example, an investment that has a 6% annual rate of return will double in 12 years.An investment with an 9% rate of return will double in 8 years.

**The Basic Formula used for solving Compound Interest Problems is:**

##
Shortcuts for solving *Compound Interest* Problems

*Compound Interest*

If A = Amount

P = Principle

C.I. = Compound Interest

T = Time in years

R = Interest Rate Per Year

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**Shortcut methods**

**Shortcut 1:**If rate of interest is R1% for first year, R2% for second year and R3% for third year, then:

Let’s find it out with an example:

1) Find the total amount after three years
on Rs 1000 if the compound interest rate for first year is 4%, for second year
is 5% and for third year is 10%.

P = 1000, R1 = 4%, R2 = 5% and R3 = 10%

**Shortcut 2:**If principle = P, Rate = R% and Time = T years then

b) If the interest is compounded half yearly (two times in year):

c) If the interest is compounded quarterly
(four times in year):

**Shortcut 3:**If difference between Simple Interest and Compound Interest is given.

a) If the difference between Simple
Interest and Compound Interest on a certain sum of money for 2 years at R% rate
is given then:

Example: If the difference between simple
interest and compound interest on a certain sum of money at 10% per annum for 2
years is Rs 2 then find the sum.

b) If the difference between Simple
Interest and Compound Interest on a certain sum of money for 3 years at R% is
given then:

**Shortcut 4:**If sum A becomes B in T1 years at compound interest, then after T2 years

**Example:**

Qn. Rs 1000 becomes 1100 after 4 years at
certain compound interest rate. What will be the sum after 8 years?

Here A = 1000, B = 1100, T1 = 4, T2 = 8

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