Q: $10,000 face value strip bond has 15 years remaining until maturity. If the prevailing market rate of return is 6.5% compounded semiannually, what is the fair market value of the strip bond?

i=j/m n =m(Term) = 2(15.5) =31 Fair market value Present value of the face value =FV(1+ i)^-n

Q: A five-year promissory note with a face value of $3500, bearing interest at 11% compounded semiannually, was sold 21 months after its issue date to yield the buyer 10% compounded quarterly.What amount was paid for the note

i=j/m Maturity value = PV(1 + i)^n Term = 5 years - 21 months= 3.25 years Price paid = FV(1+ i )^-n

Question 1

If a sum of Rs.12500 is invested for 1 year at 12% per annum interest being compounded semi-annually, then interest earned is

Accepted Answer

Rs.1545

Question 2

What will Rs.1500 amount to in three years if it is invested in 20% p.a. compound interest, interest being compounded annually?

Accepted Answer

The usual way to find the compound interest is given by the formula A = .p(1+r/100)^n In this formula, A is the amount at the end of the period of investment P is the principal that is invested r is the rate of interest in % p.a And n is the number of years for which the principal has been invested. In this case, it would turn out to be A =1500(1+20/100)^3 = 2592.

Question 3

Mr. Gupta borrowed a sum of money on compound interest. What will be the amount to be repaid if he is repaying the entire amount at the end of 2 years? I. The rate of interest is 5 p.c.p.a. II. Simple interest fetched on the same amount in one year …

Accepted Answer

I. gives, Rate = 5% p.a. II. gives, S.I. for 1 year = Rs. 600. III. gives, sum = 10 x (S.I. for 2 years). Now I, and II give the sum. For this sum, C.I. and hence amount can be obtained. Thus, III is redundant. Again, II gives S.I. for 2 years = Rs. (600 x 2) = Rs. 1200. Now, from III, Sum = Rs. (10 x 1200) = Rs . 12000. Thus,Rate = 100 * 1200 2 * 12000 =5% Thus, C.I. for 2 years and therefore, amount can be obtained. Thus, I is redundant. Hence, I or III redundan

Question 4

At 3% annual interest compounded monthly, how long will it take to double your money?

Accepted Answer

At first glance it might seem that this problem cannot be solved because we do not have enough information. It can be solved as long as you double whatever amount you start with. If we start with $100, then P = $100 and FV = $200. FV=P(1+r/n)^nt

Question 5

Find the principal if the interest compounded at the rate of 10% per annum for two years is Rs. 420 ?

Accepted Answer

Given, Compound rate, R = 10% per annum Time = 2 years C.I = Rs. 420 Let P be the required principal. A = (P+C.I) Amount, A = P 1 + r 100 n (P+C.I) = P 1 + 10 100 2 (P+420) = P[11/10][11/10] P-1.21P = -420 0.21P = 420 Hence, P = 420/0.21 = Rs. 2000

Question 6

Albert invested Rs. 8000 in a scheme for 2 years at compound interest rate 5% p.a. How much amount will Albert get on maturity of the fixed deposit ?

Accepted Answer

Amount = 8000 1 + 5 100 2 = 8000 x 21/20 x 21/20 = Rs. 8820

Question 7

An article costs Rs 50 presently. The rate of inflation is 300%. What will be cost of this article after two years?

Accepted Answer

A = P ( 1 + r / 100 ) n ⇒ 50 ( 1 + 300 / 100 ) 2 ⇒ 50 ( 4 ) 2 ⇒ 800

Question 8

What is the least number of complete years in which a sum of money put out at 40% annual compound interest will be more than trebled?

Accepted Answer

4

Question 9

What would be the least number of years in which the simple interest on Rs.2600 at % will be an exact number of rupees ?

Accepted Answer

S . I = R s . 2600 * 20 3 * 1 100 * t S . I = R s . 520 3 * t t=3

Question 10

If you deposit $8000 into an account paying 7% annual interest compounded quarterly, how long until there is $12400 in the account?

Accepted Answer

FV=P(1+r/n)^nt

Question 11

$10,000 face value strip bond has 15 years remaining until maturity. If the prevailing market rate of return is 6.5% compounded semiannually, what is the fair market value of the strip bond?

Accepted Answer

i=j/m n =m(Term) = 2(15.5)  =31 Fair market value  Present value of the face value  =FV(1+  i)^-n

Question 12

A five-year promissory note with a face value of $3500, bearing interest at 11% compounded semiannually, was sold 21 months after its issue date to yield the buyer 10% compounded quarterly.What amount was paid for the note

Accepted Answer

i=j/m Maturity value = PV(1 + i)^n Term = 5 years - 21 months=  3.25 years Price paid = FV(1+ i )^-n

Question 13

There is 50% increase in an amount in 5 years at simple interest. What will be the compound interest of Rs. 12,000 after 3 years at the same rate ?

Accepted Answer

Let p = Rs. 100. Then, S.I is Rs. 50 and time = 5 years. ∴ R = 100 × 50 100 × 5 = 10% p.a. Now, p = Rs. 12,000 , T = 3 years and R = 10% p.a. C.I. = Rs. 12000 × 1 + 10 100 3 - 1 = Rs. 3972

Question 14

Compound interest earned on a sum for the second and the third years are Rs.1200 and Rs.1440 respectively. Find the rate of interest ?

Accepted Answer

Rs.1440 - 1200 = Rs.240 is the interest on Rs.1200 for one year. Rate of interest = (100 x 240) / (1200) = 20% p.a

Question 15

The difference between simple and compound interests compounded annually on a certain sum of money for 2 years at 12% per annum is Rs 900. What is the value of given sum (in Rs)?

Accepted Answer

62500

Question 16

At what rate of compound interest per annum will a sum of Rs 20000 become Rs 23328 in 2 years?

Accepted Answer

8 percent

Question 17

On a certain principal if the simple interest for two years is Rs 1400 and compound interest for the two years is Rs 1449, what is the rate of Interest?

Accepted Answer

7 percent

Question 18

If the difference between the compound interest and the simple interest on a certain sum at the rate of 5% per annum for 2 years is Rs. 20, then the sum is

Accepted Answer

Rs. 8000

Question 19

Find compound interest on Rs. 7500 at 4% per annum for 2 years, compounded annually

Accepted Answer

Amount = Rs[7500x(1+4/100)²] =Rs.(7500 * 26/25 * 26/25) =Rs.8112 C.I = Rs(8112 - 7500) =Rs.612

Question 20

Simple interest on a certain sum of money for 3 years at 8% per annum is half the compound interest on Rs. 4000 for 2 years at 10% per annum. The sum placed on simple interest is

Accepted Answer

C.I. =Rs[4000x(1+10/100)²-4000] Rs.(4000x11/10x11/10-4000) = Rs.940. Sum =Rs. [420 *100 /3 * 8] = Rs.1750.

Compound Interest Questions