Dear Mockbankers

Today in Banker’s Bounty, you will get Simple/Compound Interest concepts and questions from previous year’s papers.

Step 1: Watch the video prepared by MockBank’s expert.

Step 2: Read the basic concepts that follow.

Step 3: Put a timer before you solve the previous year questions on decimal and fraction in quiz and record how much time it takes you to solve it.

Step 4: Send us questions in comments section below which took maximum time and we will tell you a faster way to solve it.

Basic Concepts

The cost of borrowing money is defined as Simple Interest. It is of two types – simple interest or compound interest. Simple interest(SI) is calculated only on the principal (P) whereas Compound interest(CI) is calculated on the principal and also on the accumulated interest of previous periods i.e. “interest on interest.” This compounding effect makes a  big difference in the amount of interest payable on the principal.

Simple interest:

Simple Interest = Principal x Interest Rate x Term of the loan(Time of Loan)

SI = P x i x n/100 when interest rate is taken in percent.

Compound Interest:

CI = P [(1 + i)n – 1]

where P = Principal, i = annual interest rate in percentage terms, and n = number of compounding periods.

Compounding periods : When calculating compound interest, the number of compounding periods makes a significant difference. The basic rule is that the higher the number of compounding periods, the greater the amount of compound interest. So for every INR 100 principal over a certain period of time, the amount of interest accrued at 10% annually will be lower than interest accrued at 5% semi-annually, which will in turn be lower than interest accrued at 2.5% quarterly.

In the formula for calculating compound interest, the variables “i” and “n” have to be adjusted if the number of compounding periods is more than once a year. That is, “i” has to be divided by the number of compounding periods per year, and “n” has to be multiplied by the number of compounding periods. Therefore, for a 10-year loan at 10%, where interest is compounded semi-annually (number of compounding periods = 2), i = 5% (i.e. 10% / 2) and n = 20 (i.e.10 x 2).

The following table demonstrates the difference that the number of compounding periods can make over time for a INR 10,000 loan taken for a 10-year period.

Shortcut Trick: Rule of 72

The Rule of 72 calculates the approximate time over which an investment will double at a given rate of return or interest “i”, and is given by (72 / i). It can only be used for annual compounding.

For example, an investment that has a 6% annual rate of return will double in 12 years.

An investment with an 9% rate of return will double in 8 years.

1. Mr. Rao invests a sum of Rs. 41, 250 at the rate of 6 p.c.p.a. What approximate amount of compound interest will he obtain at the end of 3 years?

Question 1 of 10

2. Find the simple interest on Rs.7200 at 8% per annum for 10 months.

Question 2 of 10

3. At what rate will Rs.14400 give Rs.4032 as simple interest in 3 yr 6 month

Question 3 of 10

4. In what time will a sum double itself at 8% per annum simple interest?

Question 4 of 10

5. At what rate will a principal increase by 25% in 2 years at Simple Interest (SI)?

Question 5 of 10

6. At what rate would Rs. 2800 yield an interest of Rs.693 in 3 yr?

Question 6 of 10

7. In what time would Rs.5000 amount to Rs.5800 at 8% per annum simple interest?

Question 7 of 10

8. In what time would a sum double itself at $$12\frac { 1 }{ 2 }$$% per annum simple interest?

Question 8 of 10

9. In what time would Rs.5400 at 8% per annum yield the same interest as Rs.2400 at 9% per annum in 4 yr.

Question 9 of 10

10. A sum of Rs.5000 was lent at 6% per annum and Rs.6000 at 7% per annum simple interest. After what time would the total interest be Rs.1080?

Question 10 of 10

1. In what time would a sum double itself at $$12frac { 1 }{ 2 }$$% per annum simple interest?
What is the Meaning Of This Question..ie)$$12frac { 1 }{ 2 }$$%