Simple interest &

compound interest
 SIMPLE INTEREST & COMPOUND INTEREST

LESSON PLAN

Subject / Quantitative Level Second UG

Course Aptitude.
Duration 1 hrs
Simple interest
Lesson Title and compound
interest Lesson Objectives

To help students to explore more in simple interests and compound interests topics and
dealing more different kind questions

To make them fit to do aptitude questions

Task Summary

Activity Duration Slide No

Ice breaking 5 mins
Introduction 15 mins 3–7
Content delivering 40 mins 8 - 27
60 mins 28
 SIMPLE INTEREST & COMPOUND INTEREST

INTEREST

When a borrower of money pays a previously agreed upon percent of the principal
at fixed time intervals in addition to the principal, it is called interest.

Previously agreed upon percent -> Rate of Interest R%

PRINCIPAL -> P
FIXED TIME -> N
AMOUNT -> A

SIMPLE INTEREST - SI compound INTEREST - CI

Rate of interest is for the principal Rate of interest is for the amount.

SI = PNR / 100
 SIMPLE INTEREST & COMPOUND INTEREST

BANKS

TAKE A LOAN

BORROWER 🡪 Person taking the loan 🡪 Gives interest

LENDER 🡪 Bank 🡪 Receives interest

DEPOSIT YOUR MONEY

BORROWER 🡪 Bank 🡪 Gives interest

LENDER 🡪 Person depositing his money. 🡪 Receives interest

 SIMPLE INTEREST & COMPOUND INTEREST

SIMPLE INTEREST compound INTEREST

R% 🡪 10% / Annum R% 🡪 10%/Annum

P - 1000
P - 1000 0th year 🡪 1000
0th year 🡪 1000 a - 1000
a - 1000 Time of
Time of CI=100
SI=100 deposit
deposit

1st year 🡪 1100 P - 1000

1st year 🡪 1100 P - 1000
a - 1100
a - 1100
CI=110
SI=100
P - 1000
P - 1000 2nd year 🡪 1210
2nd year 🡪 1200 a - 1200
a - 1200

SI=100 CI=121

P - 1000 P - 1000
3rd year 🡪 1300 3rd year 🡪 1331
a - 1300 a - 1300
 SIMPLE INTEREST & COMPOUND INTEREST

SIMPLE INTEREST

 Rate of interest is for the principal.

 SI for each year is the same.

 The amount for consecutive years in SI forms an AP.

compound INTEREST

 Rate of interest is for the amount.

 CI for each year is R % more than the previous year.

 amount in CI for each year is R % more than the previous year.

 The amount for consecutive years in CI forms a GP.

 principal and amount is the same during the time of deposit.

 SIMPLE INTEREST & COMPOUND INTEREST

Compounding in ci

Applying Rate of interest for the amount is called compounding.

ANNUALLY

If compounding is done once every 1 year ,then money is compounded annually.

HALF YEARLY

If compounding is done once every 6 months ,then money is compounded half-yearly.

QUARTERLY

If compounding is done once every 3 months ,then money is compounded quarterly.

 SIMPLE INTEREST & COMPOUND INTEREST

Ci compounded half-yearly
NOMINAL
R% - 20% / Annum R% - 10 % / 6 months RATE OF
INTEREST
P - 100
0th year 100
a - 100
Time of R% - 20% / Annum P- 100
deposit CI=10
1st year 120
6 months 110 P - 100
1st year 121
a - 110
CI=11 R% - 21% / Annum

P - 100
1st year 121
a - 121
EFFECTIVE
RATE OF INTEREST
 SIMPLE INTEREST & COMPOUND INTEREST

A sum of money doubles in 7 years under SI, how many years will it take to
become 4 times itself ?
100 In SI each year interest is the same, therefore if
1st 7 years gives Rs 100 as interest then,
7 years 2nd 7 years gives Rs 100 as interest and the
200 3rd 7 years also gives the same Rs.100 as interest.
7 years
In total it takes 21 years for Rs 100 to amount
300 to Rs 400 under SI.
7 years

400
ANS 21 YEARS
 SIMPLE INTEREST & COMPOUND INTEREST

A sum of money doubles in 7 years under CI, how many years will it take to
become 4 times itself ?

100 In CI each year interest increases by the same R%, therefore if in

1st 7 years it increases by Rs 100 which is 100% then,
7 years
2nd 7 years it will increase by Rs 200 which is the same 100%.
200
7 years
400 In total it takes 14 years for Rs 100 to amount
to Rs 400 under CI.

ANS 14
YEARS
 SIMPLE INTEREST & COMPOUND INTEREST

The SI for a certain Principal and a certain Rate of interest for the first
year is Rs. 3000.What is the sum of the interests in the 7 th , 8th and 9th
years.

SI for any given year will always be the same , therefore sum of
SI of 7th,8th,9th years is 3000 + 3000 + 3000 = 9000.

ANS 9000

A certain sum amounts to 8500 and 9350 in the 3 rd and 4th years
under CI compounded annually. What is the Rate of Interest R%?

Amount values for CI in consecutive years increase by the same

R%. Here the increase % from 3rd to 4th year is 10% and since it
is R%, Rate of interest is 10%.

ANS 10%
 SIMPLE INTEREST & COMPOUND INTEREST

DIFFERENCE between CI and SI for the same Principal (P)

and same Rate of interest (R%) and CI compounded annually.

2 years

3 years
 SIMPLE INTEREST & COMPOUND INTEREST

1. Ramakant wants to earn Rs.1500 interest on his deposit. He plans to buy a sack of grains with the
interest. He puts Rs.5000 into his account that earns 2.5% interest .How long will he need to leave
his money in the account to earn this interest that would help him by the sack of grains?

Difference between CI and SI for the same Principal (P)

and same Rate of interest (R%) and CI compounded annually for a
time period of 1 year is Zero
 SIMPLE INTEREST & COMPOUND INTEREST

2. What will be the final value of investment for the principal value of Rs.
80,000 for 4 years @ 10 % p. a. rate of interest?

Type of Interest used in banks is Compound Interest.

 SIMPLE INTEREST & COMPOUND INTEREST

3. Sangeetha invested Rs.20, 000 at 8% per annum. If the interest is

compounded half yearly, then total interest earned by Sangeetha at the
end of year is:

Annual Percent Rate(APR) is the interest rate for the principal

which is usually expressed annually.
 SIMPLE INTEREST & COMPOUND INTEREST

4. A man deposits Rs. 5000 in his bank account for 5 years to earn an interest
of 12%. What amount will he get after 5 years

Interest is not only payed for the money that is borrowed, it

can also be payed for borrowed consumer goods,
vehicles and buildings etc
 SIMPLE INTEREST & COMPOUND INTEREST

5. Given that the interest is only earned on principal, if an investment of Rs.1000

amounts to Rs.1440 in 2 years, then what is the rate of interest earned?

You could see interest as a rent that is being payed, incase of

rentals ,the rent is the interest being payed for the resource
that is borrowe.d
 SIMPLE INTEREST & COMPOUND INTEREST

6. A certain sum of money amounts to Rs.2500 in a span of 5 years and further to

Rs.3000 in a span of 7 years at SI. Find the sum?

Depending on the risk as assessed by the lender

typically using credit score the interest rate may be low or high.
 SIMPLE INTEREST & COMPOUND INTEREST

7. The difference in simple interest and compound interest on a principal of

Rs.10,00,000 in 3 years at 4% per annum is?

The interest rate is called “COST OF DEBT”

from a borrower’s perspective.
 SIMPLE INTEREST & COMPOUND INTEREST

8. A bank advertises that you can double the money if you invest it with them for
8 years, what is the rate of Interest offered by them?

The interest rate is called “RATE OF RETURN”

from lender’s perspective
 SIMPLE INTEREST & COMPOUND INTEREST

9. An investment earns 4 paise per rupee invested. If at the end of the year the interest
earned by an investment is Rs100,then the investment is equal to:

Interest rates are calculated either using the Simple Interest

or Compound Interest method with CI giving us larger
Interest than SI.
 SIMPLE INTEREST & COMPOUND INTEREST

10. The simple Interest earned on a certain amount is double the money when
invested for 15 years. What interest rate is offered?

The money that is deposited in banks, allow the banks to

give the deposited money out to borrowers in the name of
Loans.
 SIMPLE INTEREST & COMPOUND INTEREST

11. A sum of money is borrowed and paid back in two annual instalments of Rs. 882
each allowing 5% C.I. The sum borrowed was:

APY(Annual Percent Yield) vs APR .While APR represens

interest rate for consumer loans typically from a bank,APY represents
interest rate for money deposited at a bank .
 SIMPLE INTEREST & COMPOUND INTEREST

12. If difference between the compound interest and simple interest on a sum of 5% p.a.
for 2 years is Rs.20, then what is the sum?

APR fixed by banks depends on the state of economy and inflation.

 SIMPLE INTEREST & COMPOUND INTEREST

13. A person lent Rs.8000 at a rate of 15% p.a. compound interest. What is the interest
received after 3 years?

Inflation is when the currency has been devalued to a certain

level or in other words the price of goods raise,limiting the amount
of things you can buy for the same price comparitively prior to inflation.
 SIMPLE INTEREST & COMPOUND INTEREST

14. In how many years certain amount becomes thrice of itself at a rate of 12.5% p.a.
simple interest?

APR aka interest rates increase with inflation.

 SIMPLE INTEREST & COMPOUND INTEREST

15. What is the ratio of simple interest and compound interest earned on Rs.5000 at a
rate of 10% p.a. in 2 years?

Deflation is the process where prices of goods declines below

Usual standard,which unchecked can also be a concern.
THANK
YOU