Friday, 13 March 2015

SIMPLE AND COMPOUND INTEREST



This topic most relevant to your life for banking

Principal: P          The amount Deposit in a bank OR the loan taken from a person/bank
Interest: I            The amount Charged of holding principle for some period
Interest rate:        R  Some % of Amount from principal 
Time: N                 How long the principal is hold
Amount A = I+P


Simple (SI) : Interest(The amount given by the principle  holder for certain period)

Eg:  1000 is given for 10% interest rate for 3 year of time
        then the interest is 1000+(10% of 1000)*3 = 1000+(100*3) = 1300
        1000 Principal+300 interest=Total Amount

 Compound (CI) : Interest( The amount given by the principle  holder for certain period ,
                                The principal was change periodically)

Eg:  1000 is given for 10% interest rate for 3 year of time
       then the interest is 1000+200=1200 for first year
       Now the principal changed to 1200 So 1200+120=1320 for the second year
       Now the principal changed to 1320 So 1320+132=1622
       1000 Principal + 622 Interest= Total Amount


FORMULA:      

SI:

SI=(P*N*R)/100
A=P+SI
A=P(1+(N.R/100)

CI:

CI=(P((1+R)/100)^N)-P
    =((P((1+R)/100)^N)-1)
Total Amount=P+CI
 P(1+(R/100))^N

QUESTION AND ANSWER



The simple interest on a certain some of money at the rate of 5%p.a.
For 8 years is Rs.840.at what rate of interest can be received on the same sum after 5 years?

SI=840/8=one year interest=15
8*5%=40%
40%=840
1%=21
100%=2100
In what % the 2100 Interest become the same 840 in 5 Year time

5(2100*(x/100))=840
5*21x=840
21x=168
x=168/21
x=8%

TRICK(COMPOUND INTEREST)

CI=for 2 years (A+B)+A.B/100

Eg:

5% For 2 year=5+5=10
                                10+(25/100)
                                10.25
  
Eg:

CI=5% for 3 year=(A+B)+A.B/100

5% For 2 year          =5+5=10
                                10+(25/100)
                                10.25


For next year A=10.25 B=5

10.25+5=15.25+((10.25*5)/100)
            =15.25+(50+1.25)/100
15.25+(51.25/100)
15.25+.5125
15.7625%




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