Wednesday, 2 December 2015

Quantitative Aptitude IBPS Bank PO & Clerk : Simple Interest and Compound Interest Tricks Guide Practice MCQs PDF

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 typessimple interest or compound interest. Simple interest(SI) is calculated only on the principal (P) whereas Compound interest(CI) is calculated on the principal and also on the accumulated interest of previous periods i.e. “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.
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.

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

 

If A = Amount
P = Principle
C.I. = Compound Interest
T = Time in years
R = Interest Rate Per Year

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

a) If the interest is compounded annually:
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


Download link for - Simple Interest and Compound Interest Tricks Formulas and Practice Questions and answers PDF

No comments:

Post a Comment

Advertisement