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How to calculate Compound Interest quickly?

12-FEB-2018 12:26

     

    Compound Interest is one of the most important topics in Quantitative Aptitude Section. Questions from this topic are frequently asked in Banking and SSC Examinations.

    The value of money is not constant. It changes. When borrowed today, it should be paid tomorrow with an extra charge that is known as INTEREST.

    There are two types of interest – Simple Interest and Compound Interest.

    Compound Interest

    Let us now understand the Basic Concepts and Formulas of COMPOUND INTEREST.

    COMPOUND INTEREST:

     Interest on Interest

    When the borrower X and the lender Y agrees to fix up a certain time, for example yearly, half yearly or quarterly to settle the previous money, then the difference between the amount and the money borrowed is said to be the Compound Interest and is denoted by CI.

    Compound Interest can also be regarded as:

    “INTEREST ON INTEREST”

    While calculating Compound Interest you will get to know that Principal for the second unit of time is the Amount of first unit of time and so on.

    Learn to calculate Simple Interest Quickly

    MATHEMATICAL FORMULAS:

    Compound Interest Formula

    Compound Interest:

    •    When interest is compounded annually,

    Annual Compound Interest

    Where P is the Principal Amount (for which interest is to be paid)

    N is the Time (in number of years)

    R is the rate of interest

    A is the Total Amount after interest

    •    When interest is compounded half yearly,

    Half Year Compound Interest

    •    When interest is compounded quarterly,

     Quarterly Compound Interest

    Difference between Simple Interest and Compound Interest over two years:

    DifferencebetweenSIandCI

    DifferencebetweenCIandSIFormula

    Learn the basic concepts of Percentages

    Population change:

    Population Change

    Change in Population can also be calculated using the Compound Interest formula. The sign can be positive or negative as the Population increases or decreases.

    Change in Population Formula

    Where P is the Original Population

    R is the Rate of Change in Population

    N is the Number of Years

    Compound Annual Growth Rate (CAGR):

    CAGR

    CAGR Formula

    Where N is the Number of Years

    Solved Example

    Let us understand the formula of Compound Interest with an example:

    Example:  What will be the Compound Interest on Rs. 5000 at 5% per annum for 3 years, compounded annually?  

    Solution:         Compound Interest Example

    Hope you found this video on ‘How to calculate Compound Interest quickly?’ useful. For more such videos, visit Aptitude Videos on www.jagranjosh.com

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