Quantitative Aptitude Compound Interest Study Material
1. We have learnt earlier that if Principal = Rs. P, Rate= R% per annum and Time=T years then the simple interest is given by the formula
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Clearly, when money is borrowed on simple interest then the interest is calculated uniformly on the original principal throughout the loan period.
However, in post offices, banks, insurance corporations and the other money lending and deposit taking companies, the method of calculating interest is quite different.
Under this method, the borrower and the lender agree to fix up a certain unit of-time say yearly or half-yearly or quarterly, to settle the previous account.
However, in post offices, banks, insurance corporations and the other money lending and deposit taking companies, the method of calculating interest is quite different.
Under this method, the borrower and the lender agree to fix up a certain unit of-time say yearly or half-yearly or quarterly, to settle the previous account.
In such cases, the interest accured during the first unit of time is added to the original principal and the amount so obtained is taken as the Principal for the second unit of time.' The Amount of this Principal at the end of second unit of time becomes the Principal for the third unit of time and so on.
After a certain specified period, the difference between the Amount and the money borrowed is called (he Compound Interest (C.I.) for that period. ,
2. The fixed unit of time is known as the conversion period.
3. Let us take an example to explain the process. Let us suppose Rs. 1000 is lent for 2 years at 10%
Obviously, . . .
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