Compound Interest problems
- 1. In how many years will Rs 25,000 yield Rs 8,275 as compound interest at 10% per annum compounded annually?
Options- A. 2
- B. 4
- C. 3
- D. 5 Discuss
Correct Answer: 3
- 2. Albert invested an amount of Rs.8000 in a fixed deposit scheme for 2 years at compound interest rate 5 p.c.p.a. How much amount will Albert get on maturity of the fixed deposit ?
Options- A. Rs.8600
- B. Rs.8830
- C. Rs.8500
- D. Rs.8820 Discuss
Correct Answer: Rs.8820
Explanation:
Amount
=Rs.[8000x(1+5/100)²]
= Rs.[8000 x 21/20x21/20]
= Rs.8820.
- 3. If the simple interest on a sum of money at 5% per annum for 3 years is Rs. 1200, find the compound interest on the same sum for the same period at the same rate.
Options- A. Rs.1251
- B. Rs.1261
- C. Rs.1271
- D. Rs,1281 Discuss
Correct Answer: Rs.1261
Explanation:
Clearly, Rate = 5% p.a .,
Time = 3 years
S.I =Rs.1200.
So,Principal
=Rs.(100 x 1200/3x5)
=Rs.8000.
Amount
=Rs.[8000 x (1+5/100)³]
=Rs(8000x21/20x21/20x21/20)
= Rs.9261
C.I
=Rs.(9261-8000)
=Rs.1261.
- 4. The difference between the compound interest and the simple interest on a certain sum at 12% p.a. for two years is Rs.90. What will be the value of the amount at the end of 3 years?
Options- A. 8560
- B. 8673
- C. 8746
- D. 8780.80 Discuss
Correct Answer: 8780.80
Explanation:
when interest is reckoned using compound interest, interest being compounded annually. The difference in the simple interest and compound interest for two years is on account of the interest paid on the first year's interest Hence 12% of simple interest = 90 => simple interest =90/0.12 =750.
As the simple interest for a year = 750 @ 12% p.a., the principal =750/0.12 = Rs.6250.
If the principal is 6250, then the amount outstanding at the end of 3 years = 6250 + 3(simple interest on 6250) + 3 (interest on simple interest) + 1 (interest on interest on interest) = 6250 +3(750) + 3(90) + 1(10.80) = 8780.80.
- 5. If you deposit $5000 into an account paying 6% annual interest compounded monthly, how long until there is $8000 in the account?
Options- A. 6.9
- B. 7.9
- C. 8.9
- D. 9.9 Discuss
Correct Answer: 7.9
Explanation:
FV=P(1+r/n)^nt
- 6. Calculate the future value of $3,000 invested at 7% for 5 years
Options- A. 4207.66
- B. 5207
- C. 4376
- D. 5687 Discuss
Correct Answer: 4207.66
Explanation:
F=P(1+i)^n
- 7. Assume that money can be invested at 8% compounded quarterly,which is larger,$2500 now or $3800 in 5 years?
Options- A. 1557.29
- B. 2557.29
- C. 2567
- D. 2457 Discuss
Correct Answer: 2557.29
Explanation:
First find the present value of $3800,then compare present values:
M = p(1+i/4)^4n
- 8. Two payments of $10,000 each must be made one year and four years from now. If money can earn 9% compounded monthly, what single payment two years from now would be equivalent to the two scheduled payments?
Options- A. 19296
- B. 19396
- C. 19496
- D. 19596 Discuss
Correct Answer: 19296
Explanation:
The single equivalent payment will be PV + FV.
FV = Future value of $10,000, 12 months later
$10,000 *(1.0075)/12
$10,938.07
PV= Present value of $10,000, 24 months earlier
$10,000/(1.0075)24
$8358.31
The equivalent single payment is
$10,938.07 + $8358.31 = $19,296.38
- 9. A chartered bank offers a five-year Escalator Guaranteed Investment Certificate.In successive years it pays annual interest rates of 4%, 4.5%, 5%, 5.5%, and 6%, respectively, compounded at the end of each year. The bank also offers regular five-year GICs paying a fixed rate of 5% compounded annually. Calculate and compare the maturity values of $1000 invested in each type of GIC. (Note that 5% is the average of the five successive one-year rates paid on the Escalator GIC.)
Options- A. 1276.28
- B. 1234
- C. 1278
- D. 1256 Discuss
Correct Answer: 1276.28
Explanation:
FV = $1000(1.04)(1.045)(1.05)(1.055)(1.06) = $1276.14
the maturity value of the regular GIC is
FV = $ 1000 x = $1276.28
- 10. If the rate of inflation for the next 20 years is 2.5% per year, what annual income will be needed 20 years from now to have the same purchasing power as a $30,000 annual income today?
Options- A. 39158
- B. 49158
- C. 59158
- D. 69158 Discuss
Correct Answer: 49158
Explanation:
i=j/m
FV = PV(1+ i)^n
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