Simple and Compound Interest | |

Every MBA aspirant who understands percentages and the principles of arithmetic and geometric progressions will be able to handle problems of simple interest (SI) and compound interest (CI) easily. In CAT, XAT or other MBA exams, the problems on simple and compound interest are asked as a part of percentages only. Let me start this lesson with a simple problem: Tommy and his dad planted two plants on the
same day. The first plant is 10 ft high and grows by 10 ft every day. The
second plant is 1 ft high and doubles its height everyday. On which day will
the 1 ft high plant overtake the 10 ft high plant? We can see from the table that the 2 ^{nd} plant
outgrows the 1^{st} plant on the 8^{th} day (colored orange in the
table). Now, answer the following questions:1. Which
plant has a fixed increase in height everyday? How much is this increase? You can see that the 1 You can also see that the 2
Therefore, Note that the heights of the 1 Therefore, to calculate the heights on the 10 For the 1 T For the 2 T Therefore difference in heights = 512 - 100 = 412 ft This time, we invest the two amounts of Rs100 each, both at the annual rate of 10%, one at simple interest and the other at compound interest. Let's see their growth: Notice a few things:
1. In how
many years will an amount invested in simple interest at the rate of 5% get
doubled? Answer: we know that yearly amounts in a simple interest scheme are in arithmetic progression with common difference of Pr/100. In this case, the amounts will be in arithmetic progression with a common difference of 0.05P. The series is P, 1.05P, 1.1P,
1.15P, â€¦ (P + n x 0.05P), ...and so on. Let
the amount be double of the original amount after n years. Alternative Answer: The amount
is growing by 5% every year or 1/20
I shall have to end here and leave the rest of it for my CBT Club students. I shall cover some problems based on this in the CBT Club this week. You might also like: Percentage and its applications Profit and Loss, Discount |

Re: Simple and Compound Interest | |

hi tg, which method is right.. y should we not create another principal for the remaining period.? im confused... clear my doubt. plz
thanks |

Re: Simple and Compound Interest | |

SI/CI = 200/(200 + r) |

Installments | |

Hi TG, can u plz gv the formulas for installments ..... both for simple and compund interest cases? |

Re: Simple and Compound Interest | |

plz give something about instalments, both with SI and CI. also any short cut method welcome. questions like sum borrowed and instalment amount is asked. |

Re: Simple and Compound Interest | |

hi tg, i've another method for Q.5: for first 2yr si=700 after paying 4000 he has to 3000+interest of 3000 for 3yr +700=3000+450+700=4150 |

Re: Simple and Compound Interest | |

Hey TG... Please help to solve this.. What annual payment will discharge a debt of Rs 808 due in 2 years at 2% per annum ? 1) Rs.200 2) Rs.300 3) Rs.400 4) Rs.350 |

Re: Simple and Compound Interest | |

plz help me with this ques.... a sum of moneydoubles itself in 4 yrs at a certain rate of compound intrst..what is the rate?? |

Re: Simple and Compound Interest | |

Hi TG sir, the analogy which you have used is simply superb |

Re: Simple and Compound Interest | |

A simple yet powerful read. One question TG sir, Where are the questions that are supposed to be in CBT club? |

Re: Simple and Compound Interest | |

Abhishek, Question hi question to hain CBT Club mein. Aur hain kya? Are you not attempting the quizzes there? Total Gadha |

Re: Simple and Compound Interest | |

Chapterwise questions sir...but I checked the quizzes... They are grt sir!!! |

Re: Simple and Compound Interest | |

Nice article Sir,Please post articles related to bionomial theorem,log,ratio and proportion etc Thankyou. |

Re: Simple and Compound Interest | |

m also gtng 88 yrs |

Re: Simple and Compound Interest | |

hey abhirup, please give ur solution.. |

Re: Simple and Compound Interest | |

(k-1)P=P*R*16/100 (2k-1)P=P*R*40/100 dividing we get d value of k as 3 now (4k-1)P=PRT/100 dividing wid ny 1 of d 1st two eq & substituting k as 3 we get T=88 yrs |

Re: Simple and Compound Interest | |

that was simple and quick.. thanks abhirup... |

Re: Simple and Compound Interest | |

hii all.. thanx a lot 4 the sol... |

Re: Simple and Compound Interest | |

show that a sum of money will increase more than 100 times in 100 years @ 5% compound interest? |

Re: Simple and Compound Interest | |

i dont agree with ur 4150 result ..... the thing is bank will not charge money for the amount he has taken . if i am wrong kindly clear my doubt.... |

Re: Simple and Compound Interest | |

@PRAVEEN nice, a much simpler method. thanks |

Re: Simple and Compound Interest | |

Thank u sir, I really get confused with that equal payment questions. Can you throw some light on it sir. |

Re: Simple and Compound Interest | |

I am unable understand why have you used 0.05(1.06x - 6800)/0.06x = 11/20,what is 1.06 x here if x is the total amount x-6800 should be used in equation |

Re: Simple and Compound Interest | |

Thanks Kamal sir. Got the point now. |

Re: Simple and Compound Interest | |

thx a lot kamal...... |

Re: Simple and Compound Interest | |

7000= 4000/(1+2*5/100) + P/(1+5*5/100) Is this approach of equating present values incorrect? Present Value P = X/(1+n*R/100) Please explain? |

Re: Simple and Compound Interest | |

yes man you are correct this is how it should be calculated and ans should be 4235 |

Re: Simple and Compound Interest | |

can you explain the concept of SI, where SI is calculated half-yearly and quarterly? |

Re: Simple and Compound Interest | |

http://courses.confederationc.on.ca/bm105/part3/unit9/bm9s3.html |

Re: Simple and Compound Interest | |

No Mr mohit u r not correct becoz this is simple interest not compound. I hope u understand |

Re: Simple and Compound Interest | |

5775 is the total amount to be repaid at the end therefore amount borrowed should be less than 5775 and hence you cannot subtract x from 5775 at the begining. |