Dear Reader, Below are three questions based on simple and compound interests.

Question 1

Kishen Raj got an increase of 50% of the amount he invested in Simple Interest in 5 years.What will be his return on 100000/- at compound interest after 2 years at the same rate?

(a) 21000 (b)21600 (c)32100 (d) 31200

Answer : a) 21000

Solution:

Let us assume Kishen Raj had invested Rs. 100/- in Simple Interest. As per the question data, the amount would increase by 50% in 5 years.
i.e His amount would had increased to 100 x 150/100 = Rs. 150
Net interest for 5 years = Increased amount after 5 Years - original amount invested
= 150 - 100 = Rs. 50
Therefore, SI per year = 50/5 = Rs. 10. Since the amount invested was Rs. 100, simple interest rate will be 10%. (because 10% of Rs. 100 is Rs. 10)
Mr. Kishen wants to invest 100000/- in CI at 10% for 2 years.
Compound Interest = Amount(1 + Rate/100)^{number of years} - Amount
=100000(1+10/100)²-100000
100000x110/100x110/100 =121000-100000=21000.
Mr.Kishen will get a return of 21000 in 2 years.

Question 2

Magnificent Bank is offering an investing scheme where investment will be compounded at 8% per annum for 2 years. Fantastics bank promised exactly same return on invested amount but was offering a simple interest scheme. Can you tell what was the equivalent SI rate that was offered by fantastic bank ?

(a) 9.02% (b)8.56% (c) 8.32% (d)8.88%

Answer : c) 8.32%

Solution:

Let us assume Rs. 100 is invested in Magnificient Bank. At 8% compound interest for 2 years, the amount will grow to
100(1 + 8/100)² = 116.64
Net interest = 116.64 - 100 = Rs. 16.64
If same interest of Rs. 16.64 has to be given by Fantastic Bank on same amount invested (in our example, Rs.100) for 2 years, then per year return has to be 16.64/2 = Rs. 8.32
This interest is on Rs. 100. Therefore SI rate will be 8.32%

Question 3

Priya was to celebrate her daughter’s birth day. This time it was a prestige issue to her, as only last month her neighbour celebrated her son’s birthday in a grand fashion. She borrowed two loans at simple interest, one for Rs.15000 at 4% per annum and the other for Rs.14000 at 5% per annum for the same period. She paid Rs.7800 as total interest. What is the period for which she borrowed the money.

(a) 3 years (b) 6 years (c) 3 ½ years (d) 6 ½ years

Answer : b) 6 years

Solution:

Let us recall the formula for calculating Simple Interest.
SI =PNR /100 ,where P=Principal, N=period and R=rate of interest.
So, interest payable by Priya for one year on both borrowings is, 15000x1x4 / 100=600 and 14000x1x5 / 100 = 700. Total interest for one year comes to 600+700 =1300.Since she paid total interest of 7800,the period for which she borrowed money comes to 7800/1300 = 6 years.