Compound Interest problems
- 1. What will Rs.1500 amount to in three years if it is invested in 20% p.a. compound interest, interest being compounded annually?
Options- A. Rs.2592
- B. Rs.2492
- C. Rs.2352
- D. Rs.2352 Discuss
Correct Answer: Rs.2592
Explanation:
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.
- 2. 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 is Rs. 600. III. The amount borrowed is 10 times the simple interest in 2 years.
Options- A. .I only
- B. III only
- C. I or II
- D. II and Either I or III only Discuss
Correct Answer: II and Either I or III only
Explanation:
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 = =5%
Thus, C.I. for 2 years and therefore, amount can be obtained.
Thus, I is redundant.
Hence, I or III redundan
- 3. At 3% annual interest compounded monthly, how long will it take to double your money?
Options- A. 20.1
- B. 21.1
- C. 22.1
- D. 23.1 Discuss
Correct Answer: 23.1
Explanation:
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
- 4. Find the principal if the interest compounded at the rate of 10% per annum for two years is Rs. 420 ?
Options- A. Rs. 2000
- B. Rs. 2100
- C. Rs. 1900
- D. Rs. 2150 Discuss
Correct Answer: Rs. 2000
Explanation:
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+C.I) =
(P+420) = P[11/10][11/10]
P-1.21P = -420
0.21P = 420
Hence, P = 420/0.21 = Rs. 2000
- 5. 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 ?
Options- A. Rs. 8840
- B. Rs. 8800
- C. Rs. 8810
- D. None Discuss
Correct Answer: None
Explanation:
Amount =
= 8000 x 21/20 x 21/20
= Rs. 8820
- 6. An article costs Rs 50 presently. The rate of inflation is 300%. What will be cost of this article after two years?
Options- A. Rs 200
- B. Rs 600
- C. Rs 800
- D. Rs 1000 Discuss
Correct Answer: Rs 800
Explanation:
- 7. The compound interest earned in two years at 12% per annum is Rs 10176. What is the sum (in Rs) invested?
Options- A. 50000
- B. 60000
- C. 40000
- D. 80000 Discuss
Correct Answer: 40000
- 8. If you deposit $8000 into an account paying 7% annual interest compounded quarterly, how long until there is $12400 in the account?
Options- A. 2.3
- B. 3.3
- C. 4.3
- D. 6.3 Discuss
Correct Answer: 6.3
Explanation:
FV=P(1+r/n)^nt
- 9. $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?
Options- A. 1710.29
- B. 2710.29
- C. 3710.29
- D. 4710.29 Discuss
Correct Answer: 3710.29
Explanation:
i=j/m
n =m(Term) = 2(15.5) =31
Fair market value Present value of the face value
=FV(1+ i)^-n
- 10. 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
Options- A. 4336.93
- B. 5336
- C. 6336
- D. 7336 Discuss
Correct Answer: 4336.93
Explanation:
i=j/m
Maturity value = PV(1 + i)^n
Term = 5 years - 21 months= 3.25 years
Price paid = FV(1+ i )^-n
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