Compound Interest related problems are common in almost all competitive Exams. In this post we are discussing with you some of the handy shortcuts formulas that can be used to solve Compound Interest related Problems. In compound interest, the interest for each period is added to the principle before interest is calculated for the next period. With this method the principle grows as the interest is added to it. This method is mostly used in investments such as savings account and bonds etc.
The Basic Formula used for solving Compound Interest Problems is:
If A = Amount
P = Principle
C.I. = Compound Interest
T = Time in years
R = Interest Rate Per Year
Shortcut 1: If rate of interest is R1% for first year, R2% for second year and R3% for third year, then:
Let’s find it out with an example:
1) Find the total amount after three years on Rs 1000 if the compound interest rate for first year is 4%, for second year is 5% and for third year is 10%.
P = 1000, R1 = 4%, R2 = 5% and R3 = 10%
Shortcut 2: If principle = P, Rate = R% and Time = T years then
a) If the interest is compounded annually:
b) If the interest is compounded half yearly (two times in year):
c) If the interest is compounded quarterly (four times in year):
a) If the difference between Simple Interest and Compound Interest on a certain sum of money for 2 years at R% rate is given then:
Example: If the difference between simple interest and compound interest on a certain sum of money at 10% per annum for 2 years is Rs 2 then find the sum.
b) If the difference between Simple Interest and Compound Interest on a certain sum of money for 3 years at R% is given then:
Shortcut 4: If sum A becomes B in T1 years at compound interest, then after T2 years
Qn. Rs 1000 becomes 1100 after 4 years at certain compound interest rate. What will be the sum after 8 years?
Here A = 1000, B = 1100, T1 = 4, T2 = 8