Simple Interest & Compound Interest – Part 1

Good Morning Readers,

As a banking aspirant or a banker it is very important to know what is interest and why it is paid..Though there exists an app or a calculator or even a software to calculate interest rates but as a future banker it is very important to know how it actually works?? And yes, it is very simple. Think for a while why interest is paid?? There are many answers and the major thing is risk, inflation and mainly the time value of money or even you can say it is an extra money. As for as I heard, most of them will leave the questions asked in exams in this area especially!!

Now, SBI PO notification is out!! Your preparation should get overheated now because the competition is not normal it’s very huge. Start your preparation soon. Read our daily CA part. Even April CA pdf is out. Don’t prepare in the point of clearing prelims alone mains exam plays a major part and even your mains exam scores matters a lot than interview scores.

Let us look into few problems based on Simple Interest and solve it together!!

1) A sum of Rs. 1500 gives a simple interest of Rs. 252 in 2 years and 3 months. The rate of interest per annum is?
a) 5 1/2%
b) 8%
c) 7 7/15%
d) 6%
e) None of these

Click here to see Answer
Answer c) 7 7/15%
Principal, P = Rs. 1500
T = 2 year 3 months
= (2+3/12)yrs.=(2+1/4)yrs.= 9/4 yrs.
S.I = Rs. 252
R = % rate of interest per annum
R= (100×S.I.)/(P×t)
=(100×252)/(1500×9/4)
Rate of interest = 7.467% or 7 7/15% per annum.

2) A sum of Rs. 1750 is divided into two parts such that the interests on the first part at 8% simple interest per annum and that on the other part of 6% simple interest per annum are equal. The interest on each part (In rupees) is ?
a) 60
b) 65
c) 70
d) 40
e) None of these

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Answer a)
Let first part = Rs. x and second part = Rs. (1750-x)
According to the question.
x×8/100=(1750-x)×6/100
8x + 6x = 1750 x 6
14x = 1750 x 6
x=(1750×6)/10=Rs.750
Interest = 8% of Rs. 750
= 750 × 8/100=Rs,750
= 750 × 8/100=Rs.60

3) Rs. 500 was invested at 12% per annum simple interest and a certain sum of money invested at 10% per annum simple interest at. If the sum of the interests on both the sums after 4 years is Rs. 480, the latter sum of money is?
a) Rs. 450
b) Rs. 750
c) Rs. 600
d) Rs. 550
e) None of these

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Answer c)
Simple interest gained from Rs. 500
= (500×12×4)/100 = Rs. 240
Let the other Principal be Rs. x.
S.I. gained = Rs. (480 -240) = Rs. 240
(x×10×4)/100=240
x=(540×100)/40 = Rs. 600

4) How much time will it take for an amount of Rs. 450 to yield Rs. 81 as interest at 4.5% per annum of simple interest?
a) 3.5 years
b) 4 years
c) 4.5 years
d) 5 years
e) None of these

Click here to see Answer
Answer b) 4 years
Time = (100 x 81/450 x 4.5) years = 4 years.

5) A sum fetched a total simple interest of Rs. 4016.25 at the rate of 9 p.c.p.a. in 5 years. What is the sum?
a) Rs. 4462.50
b) Rs. 8032.50
c) Rs. 8900
d) Rs. 8925
e) None of these

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Answer d) Rs. 8925
Principal = Rs. (100 x 4016.25/9 x 5)
= Rs. (401625/45)
= Rs. 8925.

6) Mr. Thomas invested an amount of Rs. 13,900 divided in two different schemes A and B at the simple interest rate of 14% p.a. and 11% p.a. respectively. If the total amount of simple interest earned in 2 years be Rs. 3508, what was the amount invested in Scheme B?
a) Rs. 6400
b) Rs. 6500
c) Rs. 7200
d) Rs. 7500
e) None of these

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Answer a) Rs. 6400
Let the sum invested in Scheme A be Rs. x and that in Scheme B be Rs. (13900 – x).
Then, (x x 14 x 2/100)+ [(13900 – x) x 11 x 2]/100= 3508
28x – 22x = 350800 – (13900 x 22)
6x = 45000
x = 7500.
So, sum invested in Scheme B = Rs. (13900 – 7500) = Rs. 6400.

7) Reena took a loan of Rs. 1200 with simple interest for as many years as the rate of interest. If she paid Rs. 432 as interest at the end of the loan period, what was the rate of interest?
a) 3.6
b) 6
c) 18
d) Cannot be determined
e) None of these

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Answer
Let rate = R% and time = R years.
Then, (1200 x R x R)/100 = 432
12R2 = 432
R2 = 36
R = 6.

8) A sum of Rs. 12,500 amounts to Rs. 15,500 in 4 years at the rate of simple interest. What is the rate of interest?
a) 3%
b) 4%
c) 5%
d) 6%
e) None of these

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Answer d) 6%
S.I. = Rs. (15500 ⎯ 12500) = Rs.3000
Rate = [ 100 × 3000 / 12500 × 4 ]%
= 6%

9) A sum of money trebles itself in 15 years 6 months. In how many years would it double itself?
a) 6 years 3 months
b) 7 years 9 months
c) 8 years 3 months
d) 9 years 6 months
e) None of these

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Answer b) 7 years 9 months
Let sum = x. Then, S.I. = 2x, Time = 15 (1/2) years = 31 / 2 years
So, rate = [ 100 × 2x / x × (31/2)]% = 400 / 31%
Now, sum = x, S.I. = x, Rate = 400 / 31%
So, time = 100 × x / x × (400/31) = 31 / 4 years
= 7 years 9 months

10) A man took loan from a bank at the rate of 12% p.a. simple interest. After 3 years he had to pay Rs. 5400 interest only for the period. The principal amount borrowed by him was:
a) Rs. 2000
b) Rs. 10,000
c) Rs. 15,000
d) Rs. 20,000
e) None of these

Click here to see Answer
Answer c) Rs. 15,000
Principal = Rs. (100 x 5400/12 x 3)
= Rs. 15000.