SIMPLE & COMPOUND INTEREST

E -1 [Spring 1995]
(a) A man needs to borrow Rs.30,000 for two years. Which of the following loans is more
advantageous to him?
i) 4.1 % simple interest or
ii) 4% per annum compounded semi-annually?
(M – 6)
(b) A man borrowed Rs 5,000 at 6% simple interest and invested the same amount at 6%
1
8
compounded semi annually. What would he gain after 2 years?
( M – 6)
E -2 [Autumn 1995]
(a) The price of a commodity is expected to increase by 15% the next week. If the increase
brings the price to Rs. 7,280, what would be the price of commodity this week?
(b) What annual rate of interest compounded quarterly should one obtain in order to double
the investment in five years?
(c) A person invests Rs 25,000 in a saving account paying 12% interest compounded
semiannually. After 3 years he withdraws Rs 20,000 from the account and invests in a
certificate of deposit paying 12% interest compounded monthly, leaving the remainder in
the saving account. How much is his total compound amount two years after the purchase
of Certificate of deposits?
(d)
i) How long will it take for Rs 1,500 invested at 7% simple interest to triple in
Amount?
ii) The difference between simple Interest and compound interest on a certain sum for 5
years @ 10% p.a. is Rs 44,204. Find the compound interest on the sum for 3 years?
(M – 17)
E -3 [Spring 1996]
(a) If Rs. 30,000 amount to Rs. 76210.55 in 8 years compounded semi-annually. What is the
interest rate?
(b)
i)At what rate of interest compounded semi-annually will Rs 6000 amount to Rs
9,630 in 8 years?
ii) To clear up a debt, a person agrees to pay Rs 1000 now, another Rs 1000 a year
from now and 'another Rs 1000 in two years. If the future payments are discounted
at 8% compounded quarterly, what is the present value of these three payments?
(M - 8)
E -4 [Autumn 1996]
(a) For how many years Mr. Malik should keep Rs. 40,000 invested so as to accumulate to
the amount of Rs. 60,000 at 10% compounded semi-annually?
(b) Find the effective rate of interest equivalent to nominal rate of interest 8% compounded
quarterly? (M - 6)
 E -5 [Spring 1997]
Mr. Haroon owes Rs. 15,000 due in 5 months and Rs. 25,000 due in 8 months. He and his
creditor agreed to settle the debt by two equal payments one in 6 months and other in 11 months
from now. What will be the amount of each payment if money is worth 12% p . a simple interest
and the comparison date is 11 months from now? (M - 6)

E -6 [Autumn 1997]
(a) Mr. Junaid wants Rs.48,750 in cash as the proceeds of a 90 day loan from a bank which
charges 10% simple discount. What will be the amount he will have to pay on the
maturity date?
(b) Bank A offers 12.25% interest compounded semi-annually, on its saving accounts, while
Bank B offers 12% interest compounded monthly. Which Bank offers the higher effective
rate? (M - 10)

E -7 [Spring 1998]
Find out the effective rate of interest equivalent to the nominal rate of 12 percent compounded
quarterly. (M - 3)

E -8 [Autumn 1998]
If annual interest rate falls from 12 to 8 percent per annum, how much more be deposited in an
account to have Rs. 600,000 in 5 years, if both rates are compounded semi annually?
(M - 5)
E -9 [Spring 1999]
(a) The nominal interest rate on an investment is 16 percent per annum. Determine the
effective annual interest rate if interest is compounded quarterly.
(b) A person will receive Rs.5,000 six years from now. What is its present value at a
compounded discount rate of 8 percent?
(M - 7)
E -10 [Autumn 1999]
(a) Consumer price have been increasing at an average rate of 6% per year compounded
quarterly. The based price on a particular model of Suzuki is Rs. 300,000/-. If price on
this model increases at the same rate as other consumer prices, what will be the expected
base price of this model by 5 years from now?
(b) If a sum 'p' increases to 'm' in a certain time by the relation m= p (1+vt) where V is the
rate of increase then find 'm' through logarithm when p=80,000 r=5% t=20.
(M - 6)
E -11 [Spring 2000]
(a) A person has projected two different earning patterns for his business.
Years Plan A Plan B
1 15 4
2 19 8
3 23 16
4 27 32
5 31 64
Which plan should be followed if interest rate is 6%. Will the decision change if the
rate is 15%.
 (b) Considering the above problem answer the following:
(i) If the two options are to be equally preferable the rate of interest should be:
 Less than 6%.
 Greater than 6% and less than 15%.
 Greater than 15%.
(ii) Will the decisions change if projected earnings are doubled?
(iii) If earnings are increased by equal amounts in each year the decision:
 will change
 will not change
(M -8)
E -12 [Autumn 2000]
(a) The management of a school having 1000 students estimates that the number of students
will grow at the rate of 6% per annum. Presently a monthly fee of Rs.500 is charged
from each student. The total expenditure of the school is Rs.5.5 million per year. It is
estimated that expenditure will increase by 8% per year. How much fees the school will
have to charge in the 10th year if it wishes to earn a profit of Rs.9.6 million.
(b) The capital of a business grows @ 12% per annum compounded quarterly. If present
capital is Rs.300,000 what will be the capital after 3 years.
(M -8)
E -13 [Spring 2001]
A note bearing interest of Rs. 10,000 at 8% compounded semi-annually for 6 years is discounted,
after one year of its issue. Calculate the amount to be received if it is discounted @ 12%
compounded annually. (M - 6 )

E -14 [Autumn 2001]

The nominal interest rate on an investment is 12 percent per year. Determine the effective annual
interest rate if interest is compounded quarterly. (M - 3)
E -15 [Spring 2002]
Suppose that Mr. Rashid owes Mr. Ahmad two sums of money: Rs. 100,000 due in 2 years and
Rs.60, 000 due in 5 years. If he wishes to pay off the total debt now by a single payment, how
much he should pay? Assume an interest rate of 8% per annum compounded quarterly.
(M - 8)
E -16 [Autumn 2002]
(a) A firm's labour force is growing at the rate of 2 percent per annum. The firm now employed
500 people. How many employees may it be expected to employ in five years' time?
(b) A non interest-bearing note of Rs. 500,000 is due in 4 years from now. If the note is discounted
now at 8% compounded semi annually, what will be the proceeds and the compound discount?
(M - 8)
E -17 [Spring 2003]
(a) A trust fund for a child's education is being set up by a single payment so that at the end of 10 tears
there will be Rs.240,000. If the fund earns at the rate of 8% compounded semi-annually, how much
money should be paid into the fund initially?
(b) Determine the interest rate needed to have money double itself in 12 years under annual
compounding.
(M - 8)
E -18 [Autumn 2003]
 (a) If Rs. 100,000 is to grow to Rs.250,000 in ten years period, at what annual interest rate
must it be invested, given that interest is compounded semi annually?
(b) An individual has purchased Rs. 275,000 worth of Defense Savings Certificate. The
Certificate expires in 25 years and a simple interest rate is computed quarterly at a rate of
3 percent per quarter. Interest checks are mailed to Certificate holders every 3 months.
Determine the interest tie individual can expect to earn every three months. What amount
can he expect to receive at the end of 25 years?
(M - 12)
E -19 [Spring 2004]
(c) The population of a city was 8 million on January 1, 2000. The population is growing at
the exponential rate of 2 percent per year. What will the population be on January 1,
2005?
(d) A person borrowed Rs.20,000 from a back at a simple interest rate of 12 percent per
annum. In how many years will he owe interest of Rs.3,600.
(M – 10)
E -20 [Autumn 2004]
Rashid wants to obtain a bank loan. Bank A offers a nominal rate of 14% compounded monthly;
Bank B a nominal rate of 14.5% compounded quarterly and Bank C offers an effective rate of
14.75%. Which option he should prefer, if all other terms are same? (M - 6)
E -21 [Spring 2005]
(a) Mr. Rashid invested Rs.60, 000 in a company but found that his investment was losing
6% of its value per annum. After two years, he decided to pull out what was left of the
investment and place at 4 % interest compounded twice a year. Will he recover the
original investment after 6 more years?
(b) A borrower signs a note and agrees to pay Rs. 10,000 in 9 months at 10% simple discount.
How much this borrower receives? (M - 12)
E -22 [Spring 2005]
An investor receives a total of Rs.5,700 per annum in interest from 3 stocks yielding 4%, 5% and
8% per annum respectively. The amount at 4% is 20,000 more than the amount invested at 5%,
and the interest from the 8% investment is 8 times the interest from the 5% investment. How
much money is invested in each stock? (M - 6)
E -23 [AutBashir
owes Rs. 50,000 to Arshad due to a court decision. The money must be paid in 10 months
with no interest. Suppose Bashir wishes to pay the money now. What amount should Arshad
be willing to accept? Assume simple interest of 8% per annum. (M - 6)

E -24 [Spring 2006]

(a) An investor can earn 9.1% interest compounded semi-annually or 9% interest compounded
monthly. Determine which option he should prefer.
(M - 4)
E -25 [Autumn 2006]
(a) A person deposited Rs. 100,000 in a bank for three years. The bank paid interest at the rate of
8% per annum compounded half yearly during the first year and at the rate of 12% per annum
compounded quarterly during the last two years. Find his balance after three years.
(b) How long will it take for a sum of money to double itself at 10% simple interest?
(M -
8)
 E -26 [Spring 2007]
Compute effective rate of interest where nominal rate is 8% compounded quarterly. (M - 4)
E -27 [Autumn 2007]
The holder of a Promissory Note of Rs. 500,000 bearing interest at the rate of 9%, wishes to have it
discounted, three months before the maturity date. The note was originally payable after one year of the date
of issue. Compute the amount which the holder would receive if the discount rate is 10%.
(M - 6)
E -28 [Spring 2008]
How much should an individual deposit now to yield Rs. 600,000 at the end of five years in each of the
following situations:
(i) At 10% simple interest.
(ii) At compounded half yearly. (M - 6)
E -29 [Autumn 2008]
A bank has provided two options to an investor:
 11.1% compounded semi-annually.
 11.0% profit compounded monthly
Which option do you recommend? (M - 4)
E -30 [Autumn 2009]
a) A shopkeeper sold goods worth Rs. 3.0 million during 2008. If he is able to increase his
sale by 15% annually, determine the year in which he would achieve annual sale of Rs.
25 million.
b) A promissory note of Rs. 200,000 carries simple interest of 8% per annum. The note is
payable at the end of 2 years. The holder of the note got it discounted 6 month before
the maturity date and received an amount of Rs 221797. Compute the discount rate.
(M - 8)
E – 31 [Spring 2011]
Mr. khan deposited an amount into a bank which will be doubled in eight years
i) Find the rate of interest considering that the amount is compounded annually?
ii) How many years will it take for an amount to triple at the above calculated rate of
interest?
(M – 5)
E-32 [Autumn 2011]
a) During annual clearance sale, Independent Departmental Store (IDS) reduced the prices
of a product Z by 20%. 40% of the sale of Z was made during the clearance sale and the
profit earned thereon was 25% of cost. Find the profit percentage (on cost) which IDS
earned on product Z during the whole year. (M – 5)
b) Shiraz borrowed Rs. 120,000 for eight months at 15% simple interest. Compute the
annual rate of interest, compounded monthly, which would result in the payment
of the same amount of interest. (M – 5)
E – 33 [Spring 2012]
Hayyan invested an amount of Rs. 400,000 in an investment scheme and got Rs. 545,881 at the
end of three years. Find:
(i) The effective annual rate of interest if interest was compounded monthly.
(ii) The nominal rate if interest was compounded quarterly. (M – 6)
E-34 [Autumn 2012]
ABC Model School earned a net income of Rs.2 million per annum during 2011 whereas the
cost incurred on each student was 60% of the fee charged by the school. Compute the net profit
for the year 2015 if it is projected that the number of students would increase by 5% per annum
whereas the fee charged and the cost incurred per student would increase each year by 10% and
6% respectively. (M – 6)
E-35 [Autumn 2012]
a) An amount of Rs.20,000 is due in three months. What is the present value if it includes
simple interest @ 8%?
(M – 2)
b) The population of a country increases at the rate of 3% per annum. How many years will it
take to double itself?
(M – 4)
E-36 [Spring 2013]

The difference between simple and compound interest on a certain amount of money
for 8 years at 14% per annum is Rs. 12,500. Find theamount.
E-37 [Autumn 2013]
(a)
In October 2011 Aslam had deposited an amount in an investment scheme at 12% interest
compounded quarterly, with the objective of receiving Rs.1000,000 at the end of the 5th year
i.e. October [Link] has been informed that with effect from 1 October 2013 the interest
rate on the scheme for the remaining period would be reducedto 10%.
Determined the amount that Aslam should deposit on 1 October 2013 to have the required
amount in October 2016.
(c)
Find the face value of a bill which was discounted by a bank for Rs.95,000 five months
before maturity, at a discount rate of 12% (M – 12)
Simple & Compound interest
E -1 [Spring 1995]
(a) Here P = 30,000, r = 4.1% for simple interest
A = P( 1 + rt) = 30,000(1 +(0.041) (2)] = 32,460
i = 4% for compound interest
A = P(1 + i/2)2n= 30,000 (1 + 0.04/2)4 = 32472.9648
The first offer is better for him.
(b) Interest due after 81/2 years at 6% simple interest
= 5000 x 0.06 x 8.5= 2550
Interest earned at the end of 8.5 years
S = P(1 + i)n = 5000(1 + 0.03)17 = 5000(1.653) = 8265
Interest Earned = 8265 - 5000 = 3265
Net gain = Interest earned - Interest paid
= 3265 - 2550 = Rs.715
E -2 [Autumn 1995]
(a) Suppose cost now = Rs. 100, increase = 15%
Expected sale = Rs. 115 , Expected Price = Rs. 7,280
The cost now = 7,280  100/ 115 = 6330.43

(b) Let r be the required rate of interest then by the formula of compound interest.
We have
r
2 = 1(1+ ) 20
4

Solving above

r = 0.1411 = 14.11%

(c) The amount compounded in saving account after 5 years i.e. 3 Years before withdrawal
and Years thereafter compounded amount at the end of 3 Years:
A = P(1 + i/2)2n = 25000(1+0.06)6 = 25000 (1.418519) = 35463
Withdrawn Rs. 20000
Balance = 35463 - 20000 = 15463
Compounded Amount after 2 Years
= 15463 (1 + 0.06)4== 15463 (1.2625)
=19522 Amount compounded in certificate of deposit

i = 12% p.a or 1% p.m n = 2 Years = 24 months P = 20000 S=?

S = 20000 (1 + 0.01)24 = 20000 (1.2697) = = 25394
Total amount compounded:
= 19522 + 25394 = = 44916
 (d) Formula for simple interest
a) P(1 + rt)
P = 1500
S = 3P = 4500
r = 7% p.a.
n = ?
4500 = 1500(1+t(0.07))
3 = 1 + 0.07t
.07t = 2
t = 28.57 years
t = 28 years 7 months approximately.
b) Formula for simple interest; S = P(1+rt)
Formula for compound interest; S = P(1 + r )n
r = 10% p.a.
n=t=5
P(1+r)n-P(1+rt) = 44204

P (1+0.1)5 - P(1+(1-0.1)(5)) = 44204

P (1.61051) -P(1.5) = 44204
0.11051P = 44204
P =400,000
S = P(1+r)n
S = 400000 (1+0.1)3
S = 400000 (1.331)
S = 532400
Compound Interest = 532400- 400000
= 132400
E -3 [Spring 1996]
(c) Given Principle P = Rs. 30,000 , Amount A = Rs. 76210.55 , n = 8 2 = 16
A = P (1+i)n
76210.55 = 30000(1+i)16
Simplifying
1 + i =1.06 ,  i= 1.06-1 = 0.06 = 6%
Since this rate is semi-annual the annual rate is 12%.
(b)
i) Here P = 6000, A = 9630 n = 8 years
Formula for compound interest (For semi-annually)
A = P (1+i/2)2n
9630 =6000(1+i/2)16
1.605 =(1+i/2)16
 1.03 = 1 + i/2
i/2 = 0.03
i = 0.06

So Rate of interest is 6% Semi-annually

ii) He pays the first payment of Rs 1000 now. So Rs 1000 is the present value for
first payment.
He pays another Rs. 1,000 after one year.
So by using the following formula we can find the present value of that amount
Which discounted at 8% compounded quarterly?
S = P(1 + i/4)4n
Here S = 1000 n =1 i = 0.08 P
4
1000 = P (1 + 0.08/4)
1000 = P ( 1 + 1.02)4
P = 923.8454
He pays another Rs 1000 after two years.
S = P'(1 + i/4)4n
Here S = 1000 n=2 1 = 0.08 P=?
4x2)
1000 = P (1 + 0.08/4)
1000 = P (1.02)8
P = 853.49
So the total present value is 1000 + 923.8454 + 853.49 = 2777.3354
E -4 [Autumn 1996]
(a) Given A = Rs. 60,000 , P = Rs. 40,000 , i = 10% annual
Or 10/2 % i.e. 5 % semiannual, n=?
By Formula A = P ( 1 + i ) n
n= 4.15 years or say 4 years

(b) r = 0.08, m=4

Formula for the effective rate of interest:
e = (1 + r/m) m -1
Put the values in the above formula.
e = (1 +0.02)4 -1
= 1.082432-1
= 0.082432
= 8.24%
Thus the nominal rate of 8% compounded quarterly is equal to the effective rate of
interest 8.24% per annum.
E -5 [Spring 1997]
 Mr. Haroon owes Rs. 15000 due in 5 months and 25000 due in 8 months. He has to
pay two equal payments i.e: first payment in 6th month and 2nd in 11th month, and
the compression date is 11 month from now.

The value of 15000 at the compression date:

Formula A=P(1+rt)
Given P=15000 r =12% t = 6 /12 A=? A=15000[1 + 0.12 ( 6 / 1 2 ) ]
A=15000 (1.06), =15900
The value of 25000 at the compression date
(Given) P=25000 r =12% t = 3/12
A =?
A =25000 [1 + 0.12 (3/12)] =25000(1.03 = 25750
Hence the total credit is = 15900 + 25750 = 41650
Let the size of each payment is x
The value of x (first payment) at the comparison date:
(Given) P= x , r = 12% , t=5/12
A = x [1+012 (5/12)] = 1.05x
The sum of the payment must be equal to the total credit.
So x+1.05x = 41650
2.05x = 41650
x = 41650/2.05 = 20317.073
Hence the size of each payment is Rs. 20317.073
E -6 [Autumn 1997]
(a)
Formula P = S (1-dt)
Here P = 48,750
d = 10%
t = 90 days
S =?
S = P/(1-dt)
= 48,750/(1-(0.1)
= 48,750/0.975
= 50,000
He will pay the amount of Rs.50,000 on the maturity date.
 (b) Formula for the effective rate of interest
e = (1 +i )m -1
Effective rate for bank - A for one year
e = (1+0.1225/2)2-1
= 0.12625 or = 12.625 % per year.
Effective rate interest for Bank-B for one year
e = (1+0.12/12)12-1
= 0.126825 or
= 12.6825 % per year.
Therefore Bank-B offers the higher effective rate of interest.
E -7 [Spring 1998]
Here r = 12% m = 4 i = 0.12/4
Formula
e = (1+i)m -1
e = (1+0.12/4)4-1
= 0.1255
Therefore the effective rate of interest is 12.55%

E -8 [Autumn 1998]
First we calculate the present value of Rs. 6,00,000 at the both rates of interest:
Given
S = 6,00,000 n = 5 years r = 12% compounded semi-annually, i = 0.12/2
P=?
Formula
(Present value at 12%) = Rs. 3358036.8662
(Present value at 8%) = 405338.5013
So
If the rate of interest falls from 12% to 8% per annum.
405338.5013 – 335036.8662 = 70301.6351
Therefore an amount of Rs. 70301.6351 must be deposited in that a account to have
Rs 600,000 in 5 years.
E -9 [Spring 1999]
(a) Formula
e = (1 + i/m)m-1
Given
i = 16% Compounded quarterly (Nominal Interest rate),
m = 4 Number of Conversion periods in one year.
Required = e (effective rate of interest),
e = (1 + 0.16/4)4 -1
= 0.169858 or 16.9858 %
(b) Given
S = 5000
i = 8%
n = 6 years.
 P = Present value (requirement of the question). Formula S = P(1+i)n

S
p = (1+i)n
5000
= (1 + 0.08)6
= Rs. 3150.8481
E -10 [Autumn 1999]
(a)
Given
p = 300,000
i = 6% compounded
n = 5 years
S =?
Formula:
S =P (1 +i ) n
= 300,000 (1+0.06/4)5x4
= 404056.502

(b) Given:
P = 80,000 , r = 5% , t = 20
m=?
Formula:
m = p(1+r) t
m = 80,000 (1+0.05)20
Taking log on both sides:
log m = log [80,000 (1 + 0.05)20]
log m = log (80,000) + log (1.05)20]
log m = 4.9031 + 20 log (1.05)
log m = 4.90361 + 0.4238
log m = 5.3269
m = Anti log (5.3269)
m = 212,268.7104
E -11 [Spring 2000]
(a) Years Plan A Plan B
1 15 4
2 19 8
3 23 16
4 27 32
5 31 64
Now we calculate the present values of both the plans at 6% rate of interest.
S
Formula P =
(1  i) n
Present values of Plan A
15 19 23 27 31
1
 2
 3
 4
  94.9235
(1 0.06) (1 0.06) (1 0.06) (1 0.06) (1 0.06)5
Present values of Plan B
4 8 16 32 64
1
 2
 3
 4
  97.4988
(1 0.06) (1 0.06) (1 0.06) (1 0.06) (1 0.06)5

If the rate of interest is 6 % then plan B should be followed.

Now we calculate in the present values of both the plans at 15% rate of interest.
S
Formula P =
(1  i) n

Present Value of plan A

15 19 23 27 31
= 1
 2
 3
 4
  73.3829
(1 0.15) (1 0.15) (1 0.15) (1 0.15) (1 0.15)5
Present values of Plan B
4 8 16 32 64
1
 2
 3
 4
  70.1631
(1 0.15) (1 0.15) (1 0.15) (1 0.15) (1 0.15)5
Yes the decision will change if the rate of interest becomes 15%.
Then plan A should be followed.
(b) (i) If the two options are to be equally preferable then the rate of interest should
be greater then 6% and less than 15%.
Or this can be written 6% ≤ i ≤ 15%.
(ii) The decision will be the same if projected earnings are doubled
(Means decisions will not change)
(iii) The decisions will not change if earnings are increased by equal amounts in
each year.
E -12 [Autumn 2000]
(c)

Note: Number of students at the end of 9th year are same as the number of students
during the 10th years.
First we calculate the number of students after 9 the year.
Given: P = 1000 (Present number of students)
i = 6% (Growth rate)
n = 9 the years
S = ?

Formula: S = P ( 1 + I )n
= 1000 ( 1 + 0.06)9
= 1689.478959 or 1689
(Expected number of students during the 10th year).
Now we calculate expected expenditure in the 10th year.

Given: P = 5500000 (Present expenditure per year)

i = 8% (Expenditure growth rate)
n = 10 years
S = ?

Formula: S = P (1 + I)n
S = 5500000 ( 1 + 0.08 )9
11874087.48
Presently a monthly fee of Rs. 500 is charged from each student. Now we want to
calculate the expected fee in the 10th year to earn a total profit of Rs. 9.6 million
where the total expenditure for the 10th year is 11874087.48.

Let the expected fee in the 10th year is = x (For 12 months)

( No. of students in the 10th year) ( Expected fee ) - ( Expenditure ) = Profit
1689x - 10994525.45 = 9600000
1689 x = 20594525.45
x = 12193.32
12193.32
Per month fee in 10th year is =
12
= 1016.11
or 1016
Now we calculate constant % increase in the fee each year where
P = 500 (Present fee per month)
S = 1016 (Expected fee in the 10th years)
n = 9
i = ?
Formula: S = P (1 + i )n
1016 = 500 (1 + i ) 9
( 1 + i )9 =
( 1 + i )9 = 2.032
Taking log on both sides.
9 log (1 + i) = log 2.032
log ( 1 + i) = 0.034213744
Taking Anti log
 1 + i = 1.081966
i = 0.081966 or 8.197 %
(d)
P = 300,000 (Present Capital)
i = 12% (Compounded quarterly)
n = 3 years ( 3 x 4 = 1 2 periods)
S = ?

Formula: S = P(1 + i/4)4n

300,000 (1 + 0.12/4)12
S = 427728.28 (The value of present capital after 3 years)
E -13 [Spring 2001]
Face value note = Rs. 10,000, Rate 8% compounded semi-annually for 6 years.
2n
Maturity value of note = 1 i / 2 = 10,000(1.04)12 = Rs. 16,010.32
The note was discounted after one year @ 12%. Hence present value of proceed
= S/(1+i)n = 16010.32/(1.12)5 = Rs 9084.69
Provided note is discounted by a private party and not by a Bank.

E -14 [Autumn 2001]

Formula for effective rate of interest.
e = (1 + i/m)m-1
Here: i = 12% Compounded quarterly, n=4
Then e = ( 1 + 0.12/4) 4 - 1 =0.12550881 or 12.550881%
E -15 [Spring 2002]
Mr. Rashid wishes to pay off the total debt now. So we calculate the present value in
both cases
S1 = 100,000 S2 = 60,000
i = 8% compounded quarterly. i = 8% compounded quarterly.
n1 = 2 years n2 = 5 years
n n
P1 = S1 (1 i) 1 P2 = S 2 (1 i) 2
P1 =100,000/(1+.08/4)8 P2 = 60,000/(1+.08/4)20
P1 = 85349.03712 P2 = 40378.27999
P1 + P2 = 85349.03712 + 40378.27999
= 125727.3171
Therefore Mr. Rashid must pay Rs. 125727.3171 now to pay off the total debt by a
single payment

E -16 [Autumn 2002]

(a) Given information.
P = 500 (Present strength) , i = 2% (Growth Rate),
n = 5Year (Time period), S = ? (Sum after given period of
time) Formula S = P (1 + i) = 500 (1+0.02)5 = 552
n

So at the given rate the firm's labor force expected in five years time is 552.
(b) According to the given statement.
S = 500,000 (Maturity value),i = 8% (Discount rate)
n = 4 Years (Time period), P = ? (Proceeds)
S 500000 500000
Formula P n
 8
  365345.1025
(1  i) (1 0.08 / 2) 1.36857
Hence the present value of the non-interest bearing note is 365345.1025.

E -17 [Spring 2003]

(c) By the given information:
S = 240,000 (Required amount)
n = 10 years
i = 8% Compounded semi-annually
P = ? (Initial deposit)
Formula:
S = P(1+i)n or P 
S  240000
 20  109532.8671
(1 i) n (1 0.08 / 2)
240,000 = P(1+.08/2)20
P = 109532.8671
(d) By the given information:
P = x, S = 2x , n = 12 years I = ?
Formula:
S = P (1 + i )n
2 x = x (1 + i )12
2 = ( 1 + i )12
Taking log on both sides.
Log (1 + i )12 = log 2
12 log ( 1 + i) = log 2
log (1 + i ) = log 2/12
By taking anti log.
1 + i = 1.059463
i = 0.059463 or 5.9463%
Required rate of interest.

E -18 [Autumn 2003]

(e) Given that:
P = 110,000 (Principal amount), S = 250,000 (Future amount)
n = 10 years (Time period), i = ? (Interest rate)

Formula:
S = P (1 + i/2 )2n
250,000 = 110,000 ( 1 + i/2 )20
( 1 + i/2 )20 = 2.27273
 Taking log on both sides
20 log ( 1 + i/2) = log (2.27273)
log ( 1 + i /2) = 0.017827
Taking anti long
i / 2 = 0.0419
i = 0.083806 or 8.386 % (Required interest rate)

(f) By the given information:

P = 275,000 (Principal value), r = 3% per quarter
t = Interest will be paid after each quarters.

Formula:
I = p.r.t
3
= 275000 ( 100 ) ( 1 ) 100
= 8250
Required amount of interest which the individual can expect to earn after every three
months.
Total interest for 25 years = 8250 (4) (25)
= 825000
Last amount which can be received
at the end of 25 years = 275000 + 8250 = 283250

E -19 [Spring 2004]

(a) 8,000,000

Given that P = 8,000,000, i = 2% p.a, n =5 years S=?

Formula S = Pein
= 8,000,000 e0.02 (5)
= 8,000,000 e0.1
= 8,000,000(1.105170918)
= 8841367.345 or 8841367 (approximately)

(b) P = 20,000 , r = 12% p.a., I = 3600 t=?

Formula:
I = Prt
3600 = 20,000 (0.12) t
3600 = 2400t
t = 1.5 years

E -20 [Autumn 2004]

 We find the effective rate of Banks
We prefer the option of bank which offer lowest effective rate
r m
e = (1  ) 1
m
0.14 12
e = (1  )  1 = 14.93%
12

Effective rate of Bank 'B'

0.14 4
e = (1  ) 1 = 15.307%
4
Effective rate Bank 'C = 14.75 %

As Bank 'C offer lower rate

Therefore we accept the option of Bank C

E -21 [Spring 2005]

(a) Investment = 60,000 , loss per year 6% , Time n = 2 years
Remaining value = P (1 – r )n = 60,000(1 – 0.06)2 = Rs. 53,016
Bank Rate = 4% compounded six monthly and the compounded amount after 6 years.
53,016(1 + 0.02)12 = Rs. 67,237
Yes, the depositor will recover the original investment of Rs. 60,000 by depositing the
remaining amount in a bank account after bearing the loss in two-year time.
(b)
Borrowed amount = 10,000 , Rate 10% , time 9 months
The proceed if discounted
Proceed = face value (1- r n)
= 10,000(1 – 10/100 x 9/12 ) = 9,250

E -22 [Spring 2005]

Let investment at 5% interest = Rs x
Investment at 4% interest = Rs (x+20,000)
interest earned from amount invested at 5% = Rs. 0.05 x
Interest earned from amount invested at 4% = Rs. 0.04 (x+20,000)
= Rs. (0.04X+800)

Given that interest earned at 8% investment is 8 times the interest from 5%

investment
i.e. interest eared at 8% = 8 (0.05x)
= Rs. 0.40

Total interest earned from all investment

0.05 x +(0.04x + 800) + 0.40 x = 5,700
 0.49 x = 4,900
x = Rs. 10,000
Hence amount invested
At 5% rate = Rs. 10,000
At 4% rate = Rs. x+20,000
= 10,000+20,000
= Rs. 30.000
And 8% rate = 8(0.5 x )
= 0.08
= Rs. 50,000
E -23 [Autumn 2005]
Here r = 8% A = 50,000 t = 10/12 years
Required: P=?
A = p (1 + r t )
P= +
P = Rs. 46860.356

E -24 [Spring 2006]

(a) Here we calculate effective rate of interest
e = (1 + i ) m - 1
effective rate equivalent to nominal rate of 9.1 % compounded semi – annually
0.091 2
e = (1 + ) - 1= 0.093 = 9.3 %
2
Now
effective rate equivalent to nominal rate of 9 % compounded monthly
0.091 12
e = (1 + ) -1 = 0.0938 = 9.38%
12

second option is better

(b) Net Present value

Year Cash flow at 11 % P.V = P = S/(1+i)n

0 (1,700,000) (1700000)
1 (800,000) (720720.72)
2 500,000 405811.22
3 500,000 365595.69
4 500,000 329365.49
5 500,000 296725.66
6 500,000 267320.42
7 500,000 240829.21
8 500,000 216963.24
NPV = -298109.79
As net present value ( NPV) is negative therefore, project is not viable
E -25 [Autumn 2006]
a) Here P = Rs. 100,000
Rate = 8% compounded half yearly for first year
and 12% compounded quarterly for next 2 years
Required S =?
n n2
S = P 1 i1  1 1  i2 
S = 100000 [ 1 + 0.08/2 ]2x1 [ 1 +0.12/4 ]4x2
S = Rs. 137014
b) Rate = 10% simple interest
A = P [ 1 + rt]
Condition A = 2P
Required t=?
2 P = P [ 1 + 0.10 (t) ]
2 = 1 + 0.1 t
0.1t = 1
t = 1/0.1
t = 10 years
Hence amount will double after 10 years.
E -26 [Spring 2007]
r m
Effective Rate = [ (1  )  1 ] x 100
m
e = [ (1+ .08/4)4– 1] x 100
e = 8.24%
E -27 [Autumn 2007]
Here P = Rs. 500,000, Maturity time = 1 year, r = 9%, A=?
A =P[1 + rt]
A = 500,000(1 +0.09(1)]= Rs. 54,500
Note discounted before 3 months
t = 3/12 years, at 10% discount rate P=?
P =A [1 – dt] = 54,500(1 -0.10(3/12)] =Rs. 53,137.5
E -28 [Spring 2008]

Given; S = 600,000, Time =5 years

Required; P = ?
(i) At10% simple interest
 A 600000
P=   Rs.400,000
1  rt 1  0.10(5)
(ii) At 9% compounded half yearly:
S 600000
P= n
  Rs.386,356.61
(1 i) (1 0.09)10
E -29 [Autumn 2008]
m
Effective Rate = [ (1+i/m) – 1] x 100
Option 1: = [ (1+11.1/2)2– 1] x 100 = 11.41%
Option 2: = [ (1+11/2)2– 1] x 100 = 11.57%
Option 1 is recommended.
E -30 [Spring 2009]
a) P = 3.0 million, r = 15% = 0.15, S = 25 million, n=?

Using the relation:

S = P(1 + r)n
25/3 = (1 + 0.15)n
Log(1.15)n = Log8.3333
n Log(1.15) = Log8.3333
n (0.06070) = 0.9208
n = 0.9208/0.06070 = 15.17≈ 16
Thus the shopkeeper will achieve the sales of 25 million in the 16th year i.e. in 2024.
b)
P = Rs. 200,000, n = 2 years, i = 8% = 0.08, t = ½ year
Discounted value = Rs. 221,797, Discounted rate = r = ?
Using the relation: Maturity value = P(1 + rt)
we have:
Maturity value = 200,000[1 + (2)(0.08)]
= 200,000(1.16) = 232,000
Now, Discounted value = Maturity value / (1 + rt)
221797=232000/1+ .05r
r = 9.2%

E -31 [Spring 2011]

let the amount = x
after 8 years = 2x
i) So P = x , A = 2x , r = ? , n = 8
A = P(1 + r)n
2x = x(1 + r)n
8
2  8 (1 r)8
r = 9.05% Ans
ii) P = x , A = 3x , r = 9.05% , n = ?
 A = P(1 + r)n
3x = x(1 + 0.0905)n
Taking log
log 3 = n log 1.0905
n = 12.68
Approximately 12.68 years Ans.
E -32 [Autumn 2011]
a) As we know original sale price is 100% and discounted (clearance) sale price is 80% of
original sale price.
Let the cost = Rs. 100
Now profit on 40% sales = 25% of cost = Rs.25
Sales price of 40% sales = 125
125 100
Original sale price =  156.25
80
Profit on 60% sales = 56.25% of cost
 wx 40  25  60  56.25
Total percentage profit = 
w 40  60
= 43.75% of cost
b)
I = Prt
8
= = 12,000
12
Now r=? compounded monthly
P = 120,000
A = P + I = 120000 + 12000 = 132,000
8
m = 12, n =
12
mn
r
A = P 1  
 
 m 
120.67
 r 
132,000 = 120,000 1  
 12 
8
1  r 
1.1 =  
 12 
8
1.1 = 1+ r
12
r
1.012 = 1+
12
r
0.012 =
12
14.4% = r
r = 14.4% compounded monthly

E-33 [Spring
2012]
(i) Given: P=400,000 A = 545,881 n = 3
Required: i=?
n
A  P(1  i)
545881  400000(1  i) 3
i  10.92%
(ii) Required; r=? (i = r/m)
r
A  P(1  ) mn
m
r
545881  400000(1  )12
4
r  10.5% compounded Quarterly.
Alternatively;
r
(1  ) m  1
Effective rate = i = m
r
1.1092  (1  ) 4
4
4 r
1.1092  (1  )
4
r  (1.02625  1)  4
r  10.5% compounded Quarterly.
E -34 [Autumn 2012]
Let no. of students = S
Fee charged = F
Cost incurred = C
In 2011
Given profit= 2,000,000
Profit percentage = 40%
Total fee of 2011 F= 2000000  5000000
0.4
Also C = 0.6(5000000) = 3000000
In 2015
(using compound interest)
No of students = S(1.05)4 = 1.2155S
Fee charged = F(1.10)4 = 1.4641F
Total revenue = no. of students × Fee charged from each student.
= 1.2155S × 1.4641F = 1.7796FS = 1.7796(5,000,000)= 8,898,113.5
Cost = 3,000,000(1.06)4 = 4,603,646
Net Profit = Total Revenue – total cost
= 8,898,113.5 – 4,603,646 = 4,294,467.5
E -35 [Autumn 2012]
a) Here S = 20,000 t = 3/12 = 0.25 years r = 8%
We know that S = P(1+rt)
20,000 = P(1+(0.08)(0.25))
 20000 = P(1.02)
20000
 19607.84
1.02
P = 19607.84

b) Here P = x, A = 2x, i = 0.03 Required: n =?

This question can be solved by two concepts. Either by compound interest or by continous
compounding
By compound interest By continous compounding
We know that We know that
A  P(1  r)n A  Pe r .n
2x  xe0.03.n
2x = x(1+.03)n
2  e 0.03.n
2 = (1.03)n
Taking natural log on both sides
Taking log on both sides
Ln2 = 0.03n(lne)
Log2 = nlog1.03
0.693 = 0.03n(1) (as we know lne =
log 2 1)
n  23.45 years
log 1.03 0.693
n=  23.1 years
0.03

E -35 [spring 2013]

Formula of simple interest=I=Prt
Formula of compound interest=I=S-P or
or I  Pi  r t P
or 
I  P 1  r n 1 taking" P"as common
Difference  P1 r n 1 Pr t
Diff  P1  r  1  rn  here n = t (same time)
n

12,500  1  0.14  1  0.14  8

8

12,500  P  0.732585
P  17,062.8
E -36 [Autumn 2013]
(a)
Present value of 1,000,000 at October 2011 is
P  A(1 i) n  1,000,000(1 0.03) 20  553,675.75
It means that he deposited 553,675.75 in October 2011
Now value of this deposit in October 2013
A  P(1 i) n  553,675.75(1 0.03)8  701,379.88
Value of 1,000,000 at October 2013 with 10%
P  A(1 i) n  1,000,000(1 0.025) 12  743,555.885

Additional Amount Required = 743,555.885-701,379.88

= 42,176
(c)
By bank discounting Formula
P  A(1  dt )
12 5
95000  A(1   )
100 12
95000
A  100,000
0.95