Simple Interest and

Compound Interest
 Content
• Basics Terminology

• Concept of Simple Interest and Practice Question

• Concept of Compound Interest and Practice Question

• Relation between SI & CI question

• Concept of Doubling Amount

• Applications of Compounding
 Interest
If a person A borrows some money from another person
B for a certain period , then after that specified period,
the borrower has to return the money borrowed as well
as some additional money which is called “interest”.
 Why is interest charged?
The value of money doesn’t remain same over time.
It changes with time. The reason behind this the
inflation or price rise.
 Terminology
Principal (P):
The actual money borrowed/ deposited to bank is called
principle (SUM).

Amount (A):
The principal and the interest together is called as
“amount”.
A= P + I

Rate of Interest (R)

The interest that the borrower has to pay for every 100
rupees borrowed each year is known as rate per cent per
annum. It is denoted as R% per annum = R/100.
Basic Terminology
Basic Terminology
 Simple Interest

A=P+I
 Simple Interest
Example:
Principal = 1000
Rate of interest = 10% Per year
Time = 3 years

1. Find SI.
2. Find Total amount.

A=P+I
A=1000+300
A= 1300
 Problems on SI
Interest obtained on a sum of ₹ 6000 for 4 years is ₹ 2400. Find the
rate percent per year.
(a) 9%
(b) 10 %
(c) 11 %
(d) 12 %
 Problems on SI
What will be the simple interest on ₹ 700 at 10 % per annum for the
period from February 5, 1994 to April 18, 1994?
(a) ₹10 (b) ₹14 (c) ₹16 (d) ₹18

Here, Time interval is given as February 5,1994 to April 18,1994 = 73days

Convert days into Years.

As 1994 is non leap year, divide it by 365 = 73/365 years.

Now interest =
 Practice Questions
A man took a loan from a bank at the rate of 12% p.a. simple interest. After
3 years, he had to pay Rs. 5400 as interest for the period. What was the
principal amount borrowed by him?
a)₹10000 (b) ₹14000 (c) ₹16000 (d) ₹15000
 Doubling the money- SI
At what rate percent per annum will a sum of money double itself in
eight years when simple interest is applied?
(a) 9 % (b) 9.5% (c) 12% (d) 12.5%

Let the sum invested be P, and the rate of interest be R.

Given in 8 years, Amount=2P

P+SI=2P
Short cut:
SI=P

P×T×R/100=P Time * Rate of interest = 100

R*T=100
T×R=100

R=100/T=100/8=12.5%
 Compound Interest, Growth and Depreciation

For every changing year, the principal goes on changing and

accordingly the amount of interest applied on varying principle
will be different in every year.
Since, Principal increases after every year (reckoning period), the
amount of interest in compound interest is always more than
simple Interest.
The interest generated in case of SI or in CI the first year interest will
always be same in both the cases.
 Compound Interest

•
 Difference Between SI & CI
Simple Interest Compound Interest
Is the Principal same of Yes No
every Year
Is the rate of interest Yes Yes
same for every Year

Is the interest generated Yes No

same for every year

Is the total amount is

Yes No
same for every year
Simple and Compound Interest
 Compound Interest

Find the CI and Amount.

1. P=5000 ₹ R=20% p.a. T=2 years

A=P+I
7200=5000+I
I= 2200
 Practice Question on CI
Find the CI and Amount when the sum of 4000 ₹ is borrowed at the rate10% p.a for 3
years?
(a) 1200 ₹, 5200 ₹
(b) 1236₹, 5236 ₹
(c) 1324 ₹, 5324 ₹
(d) 1364 ₹, 5364 ₹

A=P+I
5324=4000+I
I= 1324
 Practice Question on CI
A fixed deposit of Rs. 8000 grows on a CI at 5% per annum. The deposit becomes Rs. 8820.
in how many years?
(a) 1 year
(b) 1.5 years
(c) 2 years
(d) 2.5 years
 Practice Question on CI
At what percentage per annum, will ₹ 5,000 amounts to 6,655 in three years? (Compound
Interest being reckoned)

(a) 20%
(b) 14%
(c) 24%
(d) 10%
 Doubling the money- CI
At what rate percent per annum will a sum of money double itself in
eight years when Compound interest is applied?
(a) 9 % (b) 9.5% (c) 12% (d) 12.5%

Rule of 72 in case of Doubling the money when Compound Interest is

applied

Time * Rate of interest = 72

R*T=72
R*8=72
R= 9%
 Doubling the money- CI
A sum of money placed at compound interest doubles itself in 4
years. In how many years will it amount to 8 times itself?
(a) 9 years (b) 16 years (c) 12 years (d) 20 years
 Practice Problems on SI-CI
Find the difference between the simple interest and the compound interest at 20 % Per
annum for 2 years on a principal is 4000 ₹
(a) 100
(b) 140
(c) 160
(d) 200
CI-SI
=1760-160
=160
 Conversion Period other than Yearly

The period at the end of which the interest is compounded is

called as conversion period.

It may be yearly, half yearly, quarterly etc.

 Problems on Different Conversion Period
Find the compound interest on ₹ 2000 at the rate of 18% per annum for 18 months when
interest is compounded half-yearly.
a) ₹ 2331
b) ₹ 2431
(c) ₹ 2590
(d) ₹ 2551
 Problems on Different Conversion Period
Vinay deposited ₹ 10,000 in ICICI Bank, which pays him 16% interest per annum
compounded quarterly. What is the amount that he receives after 9 months?
a) ₹ 11214.62
b) ₹ 11,248.64
(c) ₹ 11344.64
(d) ₹ 12338.68
 Applications of compounding

The concept of compounding is used in various applications such

as Growth and depreciation.
 Applications of compounding
A machine which cost ₹ 200,000 is acquired on October 1, 2006. Find the
cost of machine on October 1, 2008 if depreciation rate is 10% per annum.

a) ₹1,62,000
(b) ₹ 1,52,000
(c) ₹ 1,72,000
(d) none of these

Rate of depreciation is given as

10%.

In compound interest, interest is

added, where in depreciation
the value is decreases. Hence
modify the formula