Question 1

Sonika invests an amount of Rs 5800 for 2 years at a certain rate of compound interest per annum, compounded annually. At the end of 2 years she earns a total compound interest of Rs 594.50. What is the annual rate of compound interest?

Accepted Answer

Introduction / Context: Here, the principal and the compound interest for a fixed period are given, and the rate of interest is unknown. This is a typical reverse compound interest problem. We must use the relationship between principal, rate, time, and compound interest to determine the annual interest rate at which Sonika invested her money. Given Data / Assumptions: Principal P = Rs 5800. Time t = 2 years. Compound interest CI = Rs 594.50. Compounding is annual. Rate of interest r% per annum needs to be found. Concept / Approach: For compound interest compounded annually for 2 years, the amount A is: A = P * (1 + r / 100)^2 The compound interest is: CI = A - P = P * [(1 + r / 100)^2 - 1] So: CI / P = (1 + r / 100)^2 - 1 From this, we can solve for r by computing the ratio CI / P and then finding the square root. Step-by-Step Solution: Given P = 5800 and CI = 594.50. Compute CI / P = 594.50 / 5800. 594.50 / 5800 = 0.1025. So (1 + r / 100)^2 - 1 = 0.1025. Therefore (1 + r / 100)^2 = 1.1025. Take the square root: 1 + r / 100 = sqrt(1.1025) = 1.05. So r / 100 = 1.05 - 1 = 0.05. Therefore r = 5% per annum. Verification / Alternative Check: Check by forward calculation using r = 5%. Amount factor for 2 years: (1.05)^2 = 1.1025. Amount A = 5800 * 1.1025 = Rs 6394.50. Compound interest = A - P = 6394.50 - 5800 = Rs 594.50, which matches the given figure. Why Other Options Are Wrong: 6.5% and 6% would produce a higher effective factor than 1.1025 and hence a larger interest than Rs 594.50. 4.5% would give a lower factor and yield less interest than the given amount. Common Pitfalls: A common mistake is to assume simple interest and use CI = P * r * t / 100, which does not hold for compound interest. Another error is incorrect division when computing CI / P or forgetting to take the square root to get 1 + r / 100. Final Answer: The correct rate of compound interest is 5% per annum.

Question 2

A sum of money is invested at a compound interest rate of 20% per annum, compounded annually. What is the least number of complete years in which this sum of money will become more than double its original value?

Accepted Answer

Introduction / Context: This is another version of the doubling time question under compound interest with a rate of 20% per annum. The focus is on understanding exponential growth and finding the smallest integer number of years after which the amount exceeds twice the principal. Fractional years are not allowed because the question asks for complete years. Given Data / Assumptions: Rate of compound interest r = 20% per annum. Compounding is annual. Principal P is some positive amount. We want the least complete integer n such that A > 2P. Concept / Approach: The amount after n years at compound interest is: A = P * (1 + r / 100)^n Here r = 20%, so: A = P * (1.20)^n We require: P * (1.20)^n > 2P So: (1.20)^n > 2 We then test integer values of n until this inequality holds. Step-by-Step Solution: For n = 1: (1.20)^1 = 1.20, which is less than 2. For n = 2: (1.20)^2 = 1.44, still less than 2. For n = 3: (1.20)^3 = 1.728, which is still less than 2. For n = 4: (1.20)^4 = 1.728 * 1.20 = 2.0736. At n = 4, (1.20)^4 is greater than 2, so the amount becomes more than double at the end of 4 years. Therefore, the least number of complete years required is 4 years. Verification / Alternative Check: Using logarithms, you could solve n * log(1.20) = log(2) and obtain n ≈ 3.8. Since n must be a complete integer year, you round up to 4, which matches the earlier stepwise calculation. Why Other Options Are Wrong: 3 years is too small because the numeric factor is only 1.728, which is less than 2. 2 years or 2.5 years cannot give doubling at this rate under annual compounding. Only 4 years is the first complete year where the amount is more than double. Common Pitfalls: Using the simple interest rule of thumb that 20% for 5 years doubles the money is incorrect here, because we have compounding and are asked for more than double, not exactly double. Some candidates mistakenly round n down instead of up when using logarithms. Final Answer: The sum of money will become more than double in 4 complete years.

Question 3

The difference between the compound interest and the simple interest on a certain principal at 12% per annum for 2 years is Rs 90. If interest is compounded annually, what will be the total amount (principal plus compound interest) at the end of 3 y…

Accepted Answer

Introduction / Context: This question combines simple interest and compound interest concepts. The difference between compound interest and simple interest for 2 years is given. From this, we must deduce the principal, then use compound interest at the same rate to find the amount at the end of 3 years. It tests understanding of the special formula for the difference between compound and simple interest over 2 years. Given Data / Assumptions: Rate of interest r = 12% per annum. Time t = 2 years for the given difference. Difference between CI and SI for 2 years = Rs 90. Interest is compounded annually. We need the amount A after 3 years at the same rate on the same principal. Concept / Approach: For 2 years, the difference between compound interest and simple interest on principal P at rate r is: Difference = P * r^2 / 100^2 This formula comes from expanding the compound interest expression for 2 years. Once P is known, the amount after 3 years at rate r is: A = P * (1 + r / 100)^3 Step-by-Step Solution: Given difference = 90 and r = 12%. Use formula: Difference = P * r^2 / 100^2. So 90 = P * 12^2 / 10000 = P * 144 / 10000. Therefore P = 90 * 10000 / 144. P = 900000 / 144 = Rs 6250. Now compute amount after 3 years at 12% compound interest. Amount factor: (1.12)^3. Compute (1.12)^2 = 1.2544 and (1.12)^3 = 1.2544 * 1.12 = 1.404928. Amount A = 6250 * 1.404928 ≈ Rs 8780.80. Verification / Alternative Check: Check the difference for 2 years using P = 6250. Difference = P * r^2 / 100^2 = 6250 * 144 / 10000 = 6250 * 0.0144 = 90. This matches the given difference, so P is correct. Recomputing A confirms that the amount at the end of 3 years is approximately Rs 8780.80. Why Other Options Are Wrong: 8560 and 8673 are less than the correct amount and correspond to incorrect or incomplete compounding. 8746 is close but does not match the precise compound interest calculation. Common Pitfalls: Ignoring the special formula for the difference between CI and SI for 2 years and attempting a long method can lead to algebra errors. Using simple interest instead of compound interest when computing the amount for 3 years leads to an underestimation. Rounding intermediate values too early can slightly distort the final result, so rounding should be done at the end. Final Answer: The amount at the end of 3 years at 12% compound interest is Rs. 8780.80.

Question 4

A sum of Rs 100 doubles to Rs 200 in 5 years when invested at compound interest, compounded annually. How many additional complete years are required for the same sum to earn another Rs 200 as compound interest, that is, to reach Rs 400 in total?

Accepted Answer

Introduction / Context: This question builds on the idea of doubling time under compound interest. We are told that Rs 100 becomes Rs 200 in 5 years, so the amount doubles in that time. We must now determine how many more years it will take for the amount to earn another Rs 200 in interest, reaching Rs 400 in total, under the same compound interest conditions. Given Data / Assumptions: Initial principal P = Rs 100. Amount after 5 years A5 = Rs 200. Interest is compounded annually at some fixed rate (not explicitly required). We need the number of extra years for the amount to increase from Rs 200 to Rs 400. Concept / Approach: If a sum doubles in 5 years under a fixed compound interest rate, then every subsequent 5 year period multiplies the amount by 2 again, as long as the rate remains the same. This is because the growth factor over 5 years is 2. Therefore, after another 5 years, the amount will double again, taking Rs 200 to Rs 400. Step-by-Step Solution: Initial amount after 5 years: 100 → 200. The growth factor for 5 years is 2 (because 100 * 2 = 200). After another 5 year period at the same rate, the amount will again be multiplied by 2. So 200 will become 200 * 2 = 400. The extra time needed to go from 200 to 400 is therefore another 5 years. Verification / Alternative Check: Let the 5 year growth factor be k. We know k = 2 because 100k = 200. After another 5 years, the amount will be 100k^2 = 100 * 4 = 400. So, the total time to reach 400 is 10 years, which is 5 years after it first reached 200. Why Other Options Are Wrong: 3 years and 6 years are arbitrary and do not match the doubling behaviour controlled by the fixed 5 year doubling period. 7 years is more than needed and would give an amount higher than 400, not exactly another doubling. Common Pitfalls: Some learners confuse simple interest and compound interest and assume that another Rs 200 will take the same time proportionally, which is not correct. Others may think the rate changes after 5 years, which is not stated in the question. Final Answer: The sum requires 5 more years to earn another Rs 200 and reach Rs 400.

Question 5

Albert invests Rs 8000 in a fixed deposit scheme at a compound interest rate of 5% per annum, compounded annually, for a period of 2 years. What amount will he receive on maturity of the fixed deposit at the end of 2 years?

Accepted Answer

Introduction / Context: This is a straightforward compound interest calculation where the principal, rate, and time are given, and we need to find the maturity amount. The question mimics a fixed deposit scenario in which the interest is compounded annually at a rate of 5% for 2 years on a principal of Rs 8000. Given Data / Assumptions: Principal P = Rs 8000. Rate of interest r = 5% per annum. Time t = 2 years. Interest is compounded annually. We must find the maturity amount A (principal plus interest). Concept / Approach: The amount A after t years at compound interest with annual compounding is given by: A = P * (1 + r / 100)^t Here, r = 5 and t = 2, so we use the factor (1.05)^2. Once A is calculated, that is the maturity amount Albert receives from the fixed deposit. Step-by-Step Solution: P = 8000, r = 5%, t = 2 years. Compute the amount factor: (1 + 5 / 100)^2 = (1.05)^2. (1.05)^2 = 1.1025. Therefore, A = 8000 * 1.1025. A = Rs 8820. So Albert will receive Rs 8820 on maturity. Verification / Alternative Check: We can also compute year by year. End of year 1: amount = 8000 + 8000 * 5 / 100 = 8000 + 400 = 8400. End of year 2: interest on 8400 = 8400 * 5 / 100 = 420. Final amount = 8400 + 420 = Rs 8820, which matches the earlier calculation. Why Other Options Are Wrong: Rs. 8620 and Rs. 8520 are lower than the correct maturity amount and ignore full compounding for both years. Rs. 8320 is far too low and would correspond to a lower interest rate or shorter time. Common Pitfalls: Sometimes students apply simple interest instead of compound interest and compute interest only on the original principal each year. Others may miscalculate (1.05)^2 or multiply incorrectly. Final Answer: The amount Albert receives on maturity is Rs. 8820.

Question 6

A nominal interest rate of 6% per annum is payable half yearly. What is the effective annual rate of interest corresponding to this nominal rate?

Accepted Answer

Introduction / Context: This question tests understanding of the difference between nominal and effective interest rates. When a nominal annual rate is compounded more than once a year, such as half yearly, the effective annual rate becomes slightly higher than the nominal rate. We are given a nominal rate of 6% per annum with half yearly compounding and asked to find the equivalent effective annual rate. Given Data / Assumptions: Nominal annual rate = 6% per annum. Compounding frequency = half yearly (two times per year). We must compute the effective annual interest rate. Concept / Approach: For a nominal annual rate R compounded m times per year, the effective annual rate Reff is: Reff = (1 + (R / 100) / m)^m - 1 Here R = 6 and m = 2. So we consider half yearly rate of 3% and compound this twice to obtain the effective annual rate. Step-by-Step Solution: Nominal annual rate R = 6%. Number of compounding periods in a year m = 2 (half yearly). Periodic rate = 6 / (2 * 100) = 3 / 100 = 0.03. Effective factor for one year: (1 + 0.03)^2. Compute (1.03)^2 = 1.0609. Effective annual rate Reff = 1.0609 - 1 = 0.0609. Convert to percent: Reff = 6.09%. Verification / Alternative Check: You can imagine investing Rs 100 for one year at 6% nominal with half yearly compounding. After 6 months: amount = 100 * 1.03 = 103. After 12 months: amount = 103 * 1.03 = 106.09. Interest earned = 6.09, so the effective rate is 6.09%, confirming the calculation. Why Other Options Are Wrong: 6.06%, 6.07%, and 6.08% are all slightly lower than the exact computed effective rate and arise from approximate or truncated calculations. Only 6.09% matches the precise compounding result. Common Pitfalls: A frequent error is to assume that the effective rate equals the nominal rate and ignore compounding within the year. Some learners incorrectly add 3% twice to get 6% and do not multiply the factors, missing the extra interest on interest. Final Answer: The effective annual rate of interest is 6.09%.

Question 7

Find the compound interest on Rs 15,225 for 9 months at 16% per annum, if the interest is compounded quarterly (every three months).

Accepted Answer

Introduction / Context: In this question, the time period is 9 months and the rate of interest is 16% per annum compounded quarterly. Since quarterly compounding means a three month compounding interval, 9 months corresponds to three compounding periods. We must carefully convert the annual rate to a quarterly rate and then compute the compound interest on the given principal. Given Data / Assumptions: Principal P = Rs 15225. Annual rate r = 16% per annum. Compounding frequency = quarterly (4 times per year). Total time = 9 months = 3 quarters. We need to find compound interest for 3 quarters. Concept / Approach: For quarterly compounding, each quarter uses a rate of r / 4 percent. The number of periods n is the number of quarters in the total time. The amount A after n quarters is: A = P * (1 + (r / 100) / 4)^n The compound interest is: CI = A - P Here, r = 16, so the quarterly rate is 4%, and n = 3 quarters for 9 months. Step-by-Step Solution: Quarterly rate = 16 / 4 = 4% per quarter. Number of quarters n = 9 months / 3 months per quarter = 3. Amount factor = (1.04)^3. Compute (1.04)^2 = 1.0816. Then (1.04)^3 = 1.0816 * 1.04 = 1.124864. Amount A = 15225 * 1.124864 ≈ Rs 17126.05. Compound interest CI = A - P ≈ 17126.05 - 15225 = Rs 1901.05. Rounding to the nearest rupee, CI ≈ Rs 1901. Verification / Alternative Check: You can approximate by stepwise compounding each quarter. After first quarter: 15225 * 1.04 ≈ 158, then continue for three quarters. However, using the compact formula directly is more accurate, and the final CI value consistently comes out very close to Rs 1901. Why Other Options Are Wrong: Rs. 1911, Rs. 1909, and Rs. 1907 are all slightly off from the correct rounded value and result from incorrect rounding or erroneous intermediate computations. Only Rs. 1901 matches the precise calculation. Common Pitfalls: A frequent error is to treat 9 months as 0.75 years and apply annual compounding instead of quarterly compounding. Some candidates forget to divide the rate by 4 for quarterly compounding. Incorrect powers or calculator errors when computing (1.04)^3 can also lead to wrong answers. Final Answer: The compound interest on Rs 15225 for 9 months at 16% per annum compounded quarterly is approximately Rs. 1901.

Question 8

At what annual rate of compound interest, compounded annually, will a sum of Rs 10000 amount to Rs 12321 in 2 years?

Accepted Answer

Introduction / Context: In this problem, the principal and the final amount after 2 years are given, and we need to find the annual compound interest rate. This is a standard reverse compound interest question where you use the relation between amount, principal, rate, and time to solve for the rate of interest. Given Data / Assumptions: Principal P = Rs 10000. Amount after 2 years A = Rs 12321. Interest is compounded annually. Time t = 2 years. We must determine the annual rate of interest r. Concept / Approach: The compound interest amount formula is: A = P * (1 + r / 100)^t Here t = 2, so: A = P * (1 + r / 100)^2 We are given A and P, so we can solve for (1 + r / 100) and hence for r. Step-by-Step Solution: Substitute the values: 12321 = 10000 * (1 + r / 100)^2. Divide both sides by 10000: 12321 / 10000 = (1 + r / 100)^2. So (1 + r / 100)^2 = 1.2321. Note that 1.2321 is equal to 1.11^2 because 1.11 * 1.11 = 1.2321. Therefore 1 + r / 100 = 1.11. So r / 100 = 0.11, and r = 11% per annum. Verification / Alternative Check: Check by forward computation with r = 11%. Amount factor = (1.11)^2 = 1.2321. A = 10000 * 1.2321 = Rs 12321, which matches the given amount. This confirms that 11% is the correct rate. Why Other Options Are Wrong: 22 percent would produce a much larger amount over 2 years. 7 percent and 15 percent do not give an amount as high as 12321 when applied to 10000 for 2 years. Common Pitfalls: Some learners may forget to take the square root when solving for (1 + r / 100). Others might incorrectly assume a simple interest relation, which is not appropriate here. Final Answer: The required rate of compound interest is 11 percent per annum.

Question 9

The compound interest on a certain sum for 2 years at 10% per annum, compounded annually, is Rs 525. What is the simple interest on the same sum for double the time (4 years) at half the rate, that is, at 5% per annum?

Accepted Answer

Introduction / Context: This question connects a known compound interest situation with a new simple interest situation on the same principal. We are given the compound interest for 2 years at 10% per annum and must first find the principal. Then we calculate the simple interest for 4 years at half the original rate, that is, at 5% per annum. This tests the ability to move between compound and simple interest correctly. Given Data / Assumptions: Compound interest CI for 2 years at 10% per annum = Rs 525. Rate for CI r1 = 10% per annum. Time for CI t1 = 2 years. Rate for SI r2 = 5% per annum. Time for SI t2 = 4 years. Interest is compounded annually in the CI part. Concept / Approach: For 2 years at compound interest, the amount is: A = P * (1 + r1 / 100)^2 The compound interest CI is: CI = A - P = P * [(1 + r1 / 100)^2 - 1] From CI we can determine P. Then, simple interest for 4 years at 5% is: SI = P * r2 * t2 / 100 Step-by-Step Solution: Given CI = 525, r1 = 10%, t1 = 2 years. For 2 years, amount factor = (1.10)^2 = 1.21. Compound interest factor = 1.21 - 1 = 0.21. So CI = 0.21 * P = 525. Therefore P = 525 / 0.21 = Rs 2500. Now compute SI for 4 years at 5%. SI = P * r2 * t2 / 100 = 2500 * 5 * 4 / 100. SI = 2500 * 20 / 100 = 2500 * 0.20 = Rs 500. Verification / Alternative Check: Check CI with P = 2500. Amount after 2 years: A = 2500 * 1.21 = 3025. CI = A - P = 3025 - 2500 = Rs 525, matching the given CI. This confirms P is correct and validates the simple interest calculation. Why Other Options Are Wrong: Rs. 4000 is far too large and would correspond to an unrealistically high rate or time. Rs. 600 and Rs. 800 are larger than the correct SI and come from incorrect use of rate or time. Common Pitfalls: Some learners confuse CI and SI formulas and may attempt to apply simple interest logic when finding P. Another error is miscomputing the amount factor (1.10)^2. Final Answer: The simple interest for 4 years at 5% per annum is Rs. 500.

Question 10

You deposit 4000 United States dollars into an account paying 6% annual interest compounded quarterly. How much money will be in the account after 5 years?

Accepted Answer

Introduction / Context: This is a standard compound interest problem involving quarterly compounding. The principal is 4000 dollars, the nominal annual interest rate is 6%, and the interest is compounded four times per year. We must find the total amount in the account after 5 years, taking into account compounding every quarter. Given Data / Assumptions: Principal P = 4000 dollars. Nominal annual interest rate R = 6% per annum. Compounding frequency = quarterly (4 times per year). Total time = 5 years. We need the amount A after 5 years. Concept / Approach: For nominal rate R compounded m times per year, the periodic rate is R / m percent per period, and the number of periods is n = m * years. The amount is computed as: A = P * (1 + (R / 100) / m)^n Here R = 6, m = 4, and years = 5, so n = 20 quarters and periodic rate = 1.5% per quarter. Step-by-Step Solution: Periodic rate = 6 / (4 * 100) = 1.5 / 100 = 0.015. Number of periods n = 4 * 5 = 20. Amount factor = (1.015)^20. Compute A = 4000 * (1.015)^20. (1.015)^20 is approximately 1.346855. A ≈ 4000 * 1.346855 ≈ 5387.42 dollars. Verification / Alternative Check: You can confirm using a calculator that (1.015)^20 ≈ 1.346855. Multiplying by 4000 gives approximately 5387.42, so the result is consistent. This value is clearly larger than the simple interest amount that would be obtained at 6% for 5 years, which shows the effect of quarterly compounding. Why Other Options Are Wrong: 3387.42 is less than the principal and therefore clearly impossible after earning positive interest. 4387.42 is lower than the correct amount and seems to ignore full compounding. 6387.42 is too high and would correspond to a higher rate or longer time than given. Common Pitfalls: Some learners mistakenly use 6% per quarter instead of 1.5% per quarter. Others compute 6% per year for 5 years as simple interest without compounding. Forgetting to multiply the number of years by 4 to get the number of quarters is another typical mistake. Final Answer: The amount in the account after 5 years will be approximately 5387.42 dollars.

Question 11

Calculate the amount (principal plus compound interest) on Rs 1875 for 2 years at 4% per annum, if the interest is compounded yearly.

Accepted Answer

Introduction / Context: This question asks for the final amount after 2 years when compound interest is applied at 4% per annum on a principal of Rs 1875. The focus is on correctly applying the compound interest formula for yearly compounding and distinguishing between the amount and just the interest component. Given Data / Assumptions: Principal P = Rs 1875. Rate of interest r = 4% per annum. Time t = 2 years. Interest is compounded yearly. We must compute the final amount A. Concept / Approach: The compound interest amount formula for annual compounding is: A = P * (1 + r / 100)^t With P = 1875, r = 4, and t = 2, we need to compute (1.04)^2 and multiply by 1875. The result gives the amount, which already includes both principal and interest. Step-by-Step Solution: P = 1875, r = 4%, t = 2 years. Amount factor = (1 + 4 / 100)^2 = (1.04)^2. Compute (1.04)^2 = 1.0816. Amount A = 1875 * 1.0816. A ≈ Rs 2028. Therefore, the total amount after 2 years is Rs 2028. Verification / Alternative Check: We can also calculate year by year. End of year 1: amount = 1875 + 1875 * 4 / 100 = 1875 + 75 = 1950. End of year 2: interest on 1950 = 1950 * 4 / 100 = 78. Final amount = 1950 + 78 = Rs 2028. This matches the result obtained using the formula. Why Other Options Are Wrong: Rs. 676 and Rs. 776 are far too small and cannot represent the total amount starting from 1875. Rs. 1778 is less than the principal plus one year of simple interest and ignores the true compounding effect. Common Pitfalls: A common error is to compute only the interest and misread the question, which asks for the amount. Others may calculate simple interest for 2 years and add it to the principal, slightly underestimating the true amount. Final Answer: The amount on Rs 1875 for 2 years at 4% per annum compounded yearly is Rs. 2028.

Question 12

A woman invests Rs 2000 at the start of each year in a scheme that pays 5% compound interest per annum, compounded yearly. How much will the total value of her investments be at the end of the 2nd year?

Accepted Answer

Introduction / Context: This question involves a simple form of recurring investment under compound interest. The woman deposits Rs 2000 at the start of each year, and the investment earns 5% compound interest per annum. We must track each deposit separately, because the first deposit earns interest for 2 years, while the second deposit earns interest for only 1 year by the end of the 2nd year. Given Data / Assumptions: Deposit each time = Rs 2000. Interest rate = 5% per annum, compounded yearly. First deposit is made at the start of year 1. Second deposit is made at the start of year 2. We want the total amount at the end of year 2. Concept / Approach: Treat each deposit as a separate principal with its own time period. The first deposit earns interest for 2 years, and the second deposit earns interest for 1 year. For each deposit, use the compound interest amount formula: A = P * (1 + r / 100)^t Then add the resulting amounts together to obtain the total investment value. Step-by-Step Solution: First deposit: P1 = 2000, time t1 = 2 years. Amount from first deposit: A1 = 2000 * (1.05)^2. (1.05)^2 = 1.1025, so A1 = 2000 * 1.1025 = Rs 2205. Second deposit: P2 = 2000, time t2 = 1 year. Amount from second deposit: A2 = 2000 * 1.05 = Rs 2100. Total value at end of year 2 = A1 + A2 = 2205 + 2100 = Rs 4305. Verification / Alternative Check: Check interest earned on each deposit. First deposit interest = 2205 - 2000 = 205 over 2 years. Second deposit interest = 2100 - 2000 = 100 over 1 year. Total interest = 205 + 100 = 305, added to total deposits of 4000 gives 4305. This matches our calculated total amount. Why Other Options Are Wrong: Rs. 430 is far too small and ignores the size of the deposits. Rs. 4355 and Rs. 4350 are slightly larger than the correct value and come from errors in compounding or addition. Common Pitfalls: A common mistake is to treat the situation as if Rs 4000 were invested at once for 2 years, which is not accurate here. Some learners mistakenly apply 2 years of interest to both deposits, overestimating the final amount. Final Answer: The total value of her investments at the end of the 2nd year is Rs. 4305.

Question 13

What is the compound interest for 1 year on a sum of Rs 20000 at a rate of 40% per annum, if the interest is compounded half yearly (every 6 months)?

Accepted Answer

Introduction / Context: This question involves a high annual interest rate of 40% with half yearly compounding. Because interest is compounded twice in a year, we must convert the annual rate to a half yearly rate and compute the amount after 1 year. The compound interest is then the difference between this amount and the original principal. Given Data / Assumptions: Principal P = Rs 20000. Annual rate R = 40% per annum. Compounding frequency = half yearly. Total time = 1 year. We need the compound interest for the year. Concept / Approach: For half yearly compounding, there are two periods in a year and the rate per period is R / 2. The amount after 1 year is: A = P * (1 + (R / 100) / 2)^2 The compound interest is: CI = A - P With R = 40, the half yearly rate is 20% per half year. Step-by-Step Solution: Half yearly rate = 40 / 2 = 20%. Number of half years in 1 year = 2. Amount factor = (1.20)^2. Compute (1.20)^2 = 1.44. Amount A = 20000 * 1.44 = Rs 28800. Compound interest CI = A - P = 28800 - 20000 = Rs 8800. Verification / Alternative Check: We can also verify period by period. After first half year: amount = 20000 * 1.20 = 24000. After second half year: amount = 24000 * 1.20 = 28800. Interest over the year = 28800 - 20000 = Rs 8800, confirming our calculation. Why Other Options Are Wrong: 8000 would be the simple interest at 40% for 1 year on 20000, ignoring compounding. 8650 and 8750 are intermediate values and not consistent with exact half yearly compounding at 20% per period. Common Pitfalls: A typical error is to apply 40% once for the whole year as simple interest. Some candidates incorrectly use 40% per half year instead of 20%, badly overestimating the amount. Final Answer: The compound interest for 1 year at 40% per annum compounded half yearly is Rs. 8800.

Question 14

Shawn invests one half of his savings in a bond that pays simple interest for 2 years and receives Rs 550 as interest. He invests the remaining half of his savings in a bond that pays compound interest, compounded annually, at the same rate of inter…

Accepted Answer

Introduction / Context: This question involves two different investments by Shawn, one earning simple interest and the other earning compound interest. Both investments use the same rate and the same time period, and each investment uses half of his total savings. The problem gives the interest earned from each bond and asks for the total initial savings. This requires setting up equations based on both simple and compound interest formulas and solving them together. Given Data / Assumptions: Total savings = S (unknown). Each half investment principal = S / 2. Time for both investments = 2 years. Rate of interest = R% per annum (same for both, unknown). Simple interest from first bond in 2 years = Rs 550. Compound interest from second bond in 2 years = Rs 605. Compounding in the second bond is annual. Concept / Approach: For the simple interest bond, the interest is: SI = (S / 2) * R * 2 / 100 = S * R / 100 This equals 550. For the compound interest bond, the interest after 2 years is: CI = (S / 2) * [(1 + R / 100)^2 - 1] This equals 605. Using these two equations, we can solve for S and R. Step-by-Step Solution: From simple interest: S * R / 100 = 550. So R = 550 * 100 / S. From compound interest: (S / 2) * [(1 + R / 100)^2 - 1] = 605. Substitute R / 100 = 550 / S. Then (1 + R / 100)^2 = (1 + 550 / S)^2. The algebra simplifies, and solving the simultaneous equations gives R = 20% and S = Rs 2750. So Shawn's total savings before investment is Rs 2750. Verification / Alternative Check: Check with S = 2750 and R = 20%. First bond: principal = 1375. SI = 1375 * 20 * 2 / 100 = 1375 * 0.4 = Rs 550. Second bond: principal = 1375, CI at 20% for 2 years. Amount factor = (1.20)^2 = 1.44. Amount = 1375 * 1.44 = 1980. CI = 1980 - 1375 = Rs 605, which matches the data. This confirms that S = 2750 is correct. Why Other Options Are Wrong: 2543, 2534, and 2546 do not satisfy both the simple interest and compound interest conditions simultaneously. Only 2750 produces the exact interest amounts of 550 and 605 for the two bonds. Common Pitfalls: Some learners incorrectly assume that the same interest amount should be earned from both bonds. Others may misapply the compound interest formula or forget that each bond uses half the total savings. Algebraic mistakes when solving the simultaneous equations are also common. Final Answer: The value of Shawn's total savings before investing in the two bonds is Rs. 2750.

Question 15

Mr Mike borrows Rs 8500 at 4% per annum compound interest, compounded annually. What is the compound interest for 2 years on this loan?

Accepted Answer

Introduction / Context: This problem asks specifically for the compound interest, not the total amount, on a loan of Rs 8500 at 4% per annum for 2 years with annual compounding. It tests the ability to distinguish between the amount and the interest part and to apply the compound interest formula correctly. Given Data / Assumptions: Principal P = Rs 8500. Rate of interest r = 4% per annum. Time t = 2 years. Interest is compounded annually. We must find the compound interest only. Concept / Approach: The compound amount A after t years is: A = P * (1 + r / 100)^t The compound interest CI is the excess of the amount over the principal: CI = A - P So we compute A using the formula, then subtract P to obtain CI. Step-by-Step Solution: P = 8500, r = 4%, t = 2 years. Amount factor = (1 + 4 / 100)^2 = (1.04)^2. (1.04)^2 = 1.0816. Amount A = 8500 * 1.0816 = Rs 9193.6. Compound interest CI = A - P = 9193.6 - 8500 = Rs 693.6. Verification / Alternative Check: We can compute year by year. End of year 1: amount = 8500 + 8500 * 4 / 100 = 8500 + 340 = 8840. End of year 2: interest on 8840 = 8840 * 4 / 100 = 353.6. Final amount = 8840 + 353.6 = 9193.6. CI = 9193.6 - 8500 = Rs 693.6, which matches the earlier calculation. Why Other Options Are Wrong: Rs. 9139.6 and Rs. 9193.6 are both total amounts, not compound interest, and only Rs. 9193.6 is the correct amount. Rs. 639.6 is too low and corresponds to an incorrect interest calculation. Only Rs. 693.6 represents the correct compound interest for 2 years at 4%. Common Pitfalls: Confusing the total amount with the interest is a very common mistake. Another error is to compute simple interest for 2 years and treat it as compound interest, which gives a slightly smaller value. Final Answer: The compound interest on Rs 8500 at 4% per annum for 2 years is Rs. 693.6.

Question 16

A sum of Rs 12,500 is invested for 1 year at 12% per annum, with the interest being compounded semi-annually (two times in a year). What is the total compound interest earned, in rupees, at the end of the year?

Accepted Answer

Introduction / Context: Questions on compound interest commonly ask you to compare simple interest and compound interest, or to find the amount or interest when the compounding period is more than once a year. In this problem, a fixed sum is invested at a given annual rate, but the interest is compounded semi-annually, that is, twice in a year. The task is to compute the total compound interest earned in 1 year. This type of question tests your understanding of the compound interest formula when the compounding frequency is not yearly, as well as your ability to work carefully with percentages and time periods. Given Data / Assumptions: Principal (P) = Rs 12,500. Nominal annual rate of interest (R) = 12% per annum. Interest is compounded semi-annually, so there are 2 compounding periods in one year. Time period (T) = 1 year. We assume standard compound interest, with no additional deposits or withdrawals. Concept / Approach: The compound interest formula when interest is compounded m times per year is: Amount A = P * (1 + (R / 100) / m)^(m * T)Here, m is the number of compounding periods in a year. The compound interest (CI) is then: CI = A - PWe will substitute the values of P, R, m, and T into this formula to find A, and then subtract the original principal to obtain the interest earned. Step-by-Step Solution: Step 1: Identify the number of compounding periods per year. Since the interest is compounded semi-annually, m = 2.Step 2: Compute the rate per half-year. Annual rate R = 12%, so rate per half-year = 12 / 2 = 6%.Step 3: Compute the number of compounding periods for 1 year. T = 1 year, so total periods = m * T = 2 * 1 = 2.Step 4: Use the formula A = P * (1 + r)^(n), where r is the periodic rate and n is the number of periods.Here, r = 6 / 100 = 0.06 and n = 2. So A = 12500 * (1 + 0.06)^2.Step 5: Calculate (1 + 0.06)^2 = 1.06^2 = 1.1236.Step 6: Multiply: A = 12500 * 1.1236 = 14045.Step 7: Compute the compound interest earned: CI = A - P = 14045 - 12500 = 1545. Verification / Alternative check: You can verify quickly by computing the interest for each half-year. First half-year interest is 12,500 * 6 / 100 = 750, giving an intermediate amount of 13,250. Second half-year interest is 13,250 * 6 / 100 = 795. Total interest over the year is 750 + 795 = 1,545, which matches the detailed calculation. Hence, the computed answer is consistent and reliable. Why Other Options Are Wrong: Option Rs.1505 is lower than the correct interest and would correspond to a slightly smaller effective rate or a rounding error. Option Rs.1535 is also close but still does not match the precise result of compounding at 6% each half-year. Option Rs.1550 is slightly larger than the correct value and again does not align with the exact formula. Option Rs.1520 is another distractor that does not arise from a correct application of semi-annual compounding. Only Rs.1545 matches the accurate calculation. Common Pitfalls: Students often mistakenly treat semi-annual compounding as if it were simple interest at 12% for one year, which gives an interest of only Rs.1,500. Others forget to divide the annual rate by the number of compounding periods, or they incorrectly multiply the annual rate by 2. Another common error is to round intermediate values too early, causing small discrepancies in the final answer. It is safer to keep exact values until the final step and then round only if needed. Final Answer: The total compound interest earned on Rs 12,500 at 12% per annum, compounded semi-annually for 1 year, is Rs.1545.

Question 17

Rs 1500 is invested at 20% per annum, with interest compounded annually, for a period of 3 years. To what amount, in rupees, will this sum grow at the end of the three years?

Accepted Answer

Introduction / Context: This question is a direct application of the compound interest concept where interest is compounded annually. The principal amount and the rate of interest per annum are given, and the time period is specified in years. The problem asks for the final amount, which means we need to calculate both the interest and the principal together after three years. Such questions are standard in quantitative aptitude and help assess how well a student can use the compound interest formula and handle percentage growth over multiple periods. Given Data / Assumptions: Principal (P) = Rs 1,500. Rate of interest (R) = 20% per annum. Time (T) = 3 years. Interest is compounded annually, that is, once per year. No interim withdrawals or additional deposits are made. Concept / Approach: For annual compounding, the standard compound interest amount formula is: A = P * (1 + R / 100)^THere, A is the amount at the end of T years, P is the original principal, R is the annual rate of interest, and T is the time in years. Once we obtain A, we can recognize that A itself is the required final answer, since the question asks for the amount and not only the interest. Step-by-Step Solution: Step 1: Substitute the given values into the formula A = P * (1 + R / 100)^T.Step 2: Here P = 1500, R = 20, and T = 3. So we have A = 1500 * (1 + 20 / 100)^3.Step 3: Compute the term (1 + 20 / 100) = 1 + 0.20 = 1.20.Step 4: Calculate 1.20^3. First 1.20^2 = 1.44, and then 1.44 * 1.20 = 1.728.Step 5: Now multiply the principal by this growth factor: A = 1500 * 1.728.Step 6: Perform the multiplication: 1500 * 1.728 = 2592.Step 7: Therefore, the amount after 3 years is A = Rs.2592. Verification / Alternative check: We can also compute year by year to verify. At the end of year 1, amount = 1500 + 20% of 1500 = 1500 + 300 = 1800. End of year 2, amount = 1800 + 20% of 1800 = 1800 + 360 = 2160. End of year 3, amount = 2160 + 20% of 2160 = 2160 + 432 = 2592. This matches the result from the formula, so the calculation is confirmed to be correct. Why Other Options Are Wrong: Rs.2352 and Rs.2392 are both less than the correct amount and correspond to an effective growth lower than 20% per year. Rs.2492 is closer but still short of the exact compound interest result, suggesting an incorrect or approximate calculation. Rs.2450 is another distractor that does not come from consistent annual compounding at 20%. Only Rs.2592 matches the correctly computed amount. Common Pitfalls: Learners sometimes confuse simple interest and compound interest and may compute 3 years of simple interest as 1500 * 20 * 3 / 100 = 900, giving amount 2400, which is not correct for compounding. Another mistake is to incorrectly square or cube the growth factor, for example, multiplying 1.20 by 3 instead of raising it to the power 3. Careful stepwise work with exponents avoids these errors. Final Answer: The amount to which Rs 1,500 will grow in 3 years at 20% per annum, compounded annually, is Rs.2592.

Question 18

Mr Gupta borrows a certain sum of money on compound interest and plans to repay the entire amount at the end of 2 years. In how many of the following statement combinations is the information sufficient to determine the exact amount he has to repay?…

Accepted Answer

Introduction / Context: This is a data sufficiency style question based on compound interest and simple interest. Instead of directly asking for a numerical answer, it asks which set of given statements provides enough information to determine the amount Mr Gupta must repay after 2 years on compound interest. Such questions test both conceptual understanding of interest formulas and logical reasoning about which pieces of data are truly necessary and sufficient for a unique solution. Given Data / Assumptions: Mr Gupta borrows a principal amount P on compound interest. The repayment is due at the end of 2 years. Statement I: The rate of interest is 5 percent per annum. Statement II: Simple interest on the same sum for 1 year at the same rate is Rs 600. Statement III: The sum borrowed is 10 times the simple interest for 2 years at the same rate. We assume all statements refer to the same principal and the same annual rate of interest. Concept / Approach: For compound interest, amount after 2 years is: A = P * (1 + r / 100)^2To compute A, we must know both P (the principal) and r (the annual rate). The data sufficiency task is to check which combination of statements allows us to uniquely determine both P and r. Simple interest information gives relationships among P, r, and time using: SI = P * r * T / 100 Step-by-Step Solution: Step 1: Analyze Statement I alone. It tells us r = 5% per annum, but does not give P. Hence we cannot compute A, so I alone is not sufficient.Step 2: Analyze Statement II alone. It states that SI for 1 year is Rs 600. Using SI = P * r * 1 / 100, we get P * r = 60000. This is only one equation in two unknowns (P and r). Hence II alone is not sufficient.Step 3: Analyze Statement III alone. It says the amount borrowed P is 10 times the simple interest for 2 years. SI for 2 years is P * r * 2 / 100. So P = 10 * (P * r * 2 / 100) which simplifies to 1 = 20r / 100, giving r = 5%. Principal P cancels out and remains unknown, so III alone is not sufficient.Step 4: Combine I and II. From I, r = 5. From II, P * r = 60000, so P * 5 = 60000, giving P = 12000. With both P and r known, A can be determined uniquely. Thus, I and II together are sufficient.Step 5: Combine II and III. From III, we again find r = 5. Using II, P * r = 60000, so P = 12000. Again, we can compute the exact amount A. Therefore II and III together are also sufficient.Step 6: Combine I and III. Both give r = 5%, but do not fix P. Therefore, together they are still insufficient to find A. Verification / Alternative check: Once P = 12000 and r = 5 are known (from II plus either I or III), the amount after 2 years of compound interest would be A = 12000 * (1 + 5 / 100)^2 = 12000 * 1.1025 = 13230. This confirms there is a unique answer when those combinations of statements are used. The exact numerical value is not required in the data sufficiency options, but verifying it shows consistency. Why Other Options Are Wrong: Statement I alone lacks the principal, so Option A is not correct. Statement III alone also fails to give P, so Option B is not correct. Claiming that either I or II alone is sufficient (Option C) is wrong, because each leaves at least one unknown. Option E, saying all three statements are necessary, is incorrect because we already saw that II with either I or III is enough. Only Option D correctly states that statements II and either I or III together suffice. Common Pitfalls: A common error is to think that knowing the rate alone or knowing simple interest alone is enough to find the compound amount, forgetting that both principal and rate are needed. Another mistake is failing to notice that Statement III actually determines the rate by eliminating the principal from the equation. Students may also mistakenly believe that all three statements must be combined, without checking that smaller combinations already provide a complete solution. Final Answer: The amount to be repaid after 2 years can be uniquely determined only when we use Statement II together with either Statement I or Statement III, so the correct choice is Statements II and either I or III together are sufficient.

Question 19

Money is invested at 3% annual interest, compounded monthly. Approximately how many years will it take for the investment to double in value (that is, become twice the original principal)?

Accepted Answer

Introduction / Context: This problem asks for the time required for an investment to double at a given nominal annual interest rate when the interest is compounded monthly. Rather than asking for the amount or the interest, the focus is on the time period. This is a classic application of the compound interest formula solved for time, and it helps you understand the long term effect of relatively small interest rates when compounding occurs frequently, such as every month. Given Data / Assumptions: The nominal annual rate of interest R = 3% per annum. Interest is compounded monthly, so there are m = 12 compounding periods in a year. The initial principal is some amount P, and we want the amount to become 2P. We assume there are no withdrawals or extra deposits during the period. We seek the time T in years, to at least one decimal place, that yields doubling. Concept / Approach: For nominal annual rate R compounded m times per year, the compound amount after T years is: A = P * (1 + (R / 100) / m)^(m * T)We want A = 2P, that is, the amount doubles. So: 2P = P * (1 + (R / 100) / m)^(m * T)After canceling P, we get: 2 = (1 + (R / 100) / m)^(m * T)We then solve for T using logarithms. Step-by-Step Solution: Step 1: Identify the periodic rate. Here R = 3% and m = 12, so monthly rate = 3 / 100 / 12 = 0.03 / 12 = 0.0025.Step 2: The equation for doubling is 2 = (1 + 0.0025)^(12 * T).Step 3: Take natural logarithms on both sides to isolate T: ln(2) = (12 * T) * ln(1.0025).Step 4: Solve for T: T = ln(2) / (12 * ln(1.0025)).Step 5: Numerically, ln(2) is about 0.6931 and ln(1.0025) is approximately 0.0024969, giving T approximately equal to 0.6931 / (12 * 0.0024969).Step 6: Compute the denominator: 12 * 0.0024969 is about 0.0299628.Step 7: Now T is roughly 0.6931 / 0.0299628, which is close to 23.1 years. Verification / Alternative check: As a rough rule of thumb, the time to double with annual compounding can often be approximated by the rule of 72, which says doubling time is about 72 / R years. With R = 3, this gives about 24 years. Because monthly compounding is slightly more beneficial than annual compounding, the actual doubling time should be a little less than 24 years. A value around 23 to 23.2 years therefore makes sense and confirms our detailed calculation of about 23.1 years. Why Other Options Are Wrong: 20.1, 21.1, and 22.1 years are all too small, implying a faster doubling than what 3% annual interest compounded monthly can provide. They would require a higher effective interest rate. The choice 18.1 years is much too small and clearly unrealistic for such a low nominal rate. Only about 23.1 years aligns with the exact calculation and the rule of 72 approximation. Common Pitfalls: Many students mistakenly use simple interest calculations or forget to divide the nominal annual rate by the number of compounding periods. Some try to use the rule of 72 without considering that monthly compounding slightly reduces the doubling time compared to annual compounding. Others avoid using logarithms and guess randomly. A systematic use of the compound interest formula and basic logarithm properties leads to the correct answer. Final Answer: At 3% annual interest compounded monthly, the investment will double in approximately 23.1 years.

Question 20

The compound interest earned on a certain principal at 10% per annum for 2 years is Rs 420. At this same rate of interest, what is the principal amount, in rupees, that must have been invested to generate this compound interest?

Accepted Answer

Introduction / Context: In this question, the total compound interest over 2 years and the annual rate of interest are given, and we are asked to find the principal amount. This reverses the usual direction of compound interest questions. Instead of computing interest from a known principal, we must work backward from the known interest to determine the original principal. This tests understanding of the compound interest formula and the ability to manipulate it algebraically. Given Data / Assumptions: Total compound interest (CI) for 2 years = Rs 420. Rate of interest R = 10% per annum. Time T = 2 years. Interest is compounded annually. Principal P is unknown and must be found. Concept / Approach: With annual compounding, amount after T years is: A = P * (1 + R / 100)^TCompound interest is: CI = A - PHere, T = 2 and R = 10, so: A = P * (1 + 10 / 100)^2 = P * (1.1)^2A = P * 1.21Then CI = A - P = P * 1.21 - P = P * (1.21 - 1) = 0.21 * P. We know CI is 420, so 0.21 * P = 420, and we can solve for P. Step-by-Step Solution: Step 1: Write the relation between CI and P for 2 years at 10%: CI = P * (1.21 - 1) = 0.21 * P.Step 2: We are told CI = 420, so set up the equation 0.21 * P = 420.Step 3: Solve for P by dividing both sides by 0.21: P = 420 / 0.21.Step 4: Compute 420 / 0.21. Note that 0.21 = 21 / 100. So P = 420 * 100 / 21.Step 5: Simplify: 420 / 21 = 20. Therefore P = 20 * 100 = 2000.Step 6: So the required principal is Rs 2,000. Verification / Alternative check: We can verify by computing the compound interest on Rs 2,000 at 10% per annum for 2 years. For year 1, interest = 2000 * 10 / 100 = 200, so amount = 2200. For year 2, interest = 2200 * 10 / 100 = 220, so final amount = 2420. The total compound interest is 2420 - 2000 = 420, which matches the given value. Therefore, P = Rs 2,000 is correct. Why Other Options Are Wrong: Rs.1900, Rs.2100, Rs.2150, and Rs.2200 all produce compound interests that are different from Rs 420 when the same formula is applied. For example, taking P = 2100 would give CI = 0.21 * 2100 = 441, which is larger than 420. Similarly, 1900 gives less than 420. Thus none of these meet the stated condition that the compound interest is exactly Rs 420. Common Pitfalls: One common mistake is to confuse the simple interest formula with compound interest, for example trying SI = P * R * T / 100 instead of using the 2 year compound interest relation. Another is to compute one year of interest and simply double it, which only works for simple interest. Some candidates also forget that (1.1)^2 equals 1.21, not 1.20, and this small error leads to incorrect results. Working carefully with the formula and double checking the arithmetic avoids these issues. Final Answer: The principal that must have been invested to earn a compound interest of Rs 420 in 2 years at 10% per annum is Rs.2000.

Compound Interest Questions