Wednesday, 19 April 2017

Interest II - How to Find Simple Interest and Compound Interest in the SBI PO and IBPS Exam

In this post we will Find Simple Interest and Compound Interest using smart method to save time during the SBI PO, IBPS, SSC exam. 

Simple Interest and Compound Interest

In the previous blog, How to calculate Interest in IBPS, SBI PO, SSC Exam, we discussed the basic concept of interest and the difference between Simple Interest and Compound Interest. In this post we will discuss two modules under the concept of Simple Interest and Compound Interest. These modules are based on questions that are frequently asked during the examination. The questions are quite simple, however solving them via regular method is a tedious job due to the lengthy procedure.We have solved these questions using the smart method which will help you to save some time. 

Here is a list of formulas that will help you to solve questions based on the concept of Simple Interest and Compound Interest.
Simple Interest and Compound Interest

                          Simple Interest and Compound Interest

Simple Interest and Compound Interest

Simple Interest and Compound Interest

How to Find Simple Interest and Compound Interest- Module 1 

Few questions in the examination are on finding the principal amount from the given data. Given below are two types of questions based on finding the principal amount. 

Example 1: How to Find Simple Interest and Compound Interest- Module

Problem: Simple Interest of an amount after 24 months at rate 2% per quarter is Rs.960. What is the amount?

Regular Method
Step 1 :
            P- ?
            T - 24 months (i.e.) 2 years.
            R - 2% per quarter
                                 = 2x4 (as an year is divided into 4 quarters)
                                 = 8% per annum
            SI - Rs 960
Step 2 : 
            SI = PTR/100
            960 = (p x 2 x 8)/100 
Step 3 : 
            P = (100 x 960)/(2 x 8)
Step 4 : 
            P = 6000
Therefore, principal amount deposited at the starting of the time period is Rs.6000.

Smart Method

Now let's solve this question using a smart method which will help you to save some time.
This problem is solved using the percentage and cross multiplication method.

Simple Interest and Compound Interest

Solution: 

  •  We already know that Rs.960 is the 16% of the principal amount. 
  •  Now the principal amount is the 100% of the amount. 
  •  As per the concept of ratio and equivalent proportionality, we cross multiply the      percentage of the principal with the interest amount and the unknown principal with      the Rate of Interest to find the Principal. 
Step 1:
     
       By cross multiplication we get,
       P = 100 x 960 / 16
       P = 6000
Therefore, principal amount deposited at the starting of the time period is Rs.6000.
                                       

Example 2: How to Find Simple Interest and Compound- Module 1

Problem: An amount becomes 8,800 in 4 years at 15% p.a. What is the amount?       *Note: Unless mentioned solve every question based on Simple Interest formula.


Regular Method

This is a very tricky question. In hurry most of the students tend to make mistake by not reading the question carefully. In the question it is mentioned that "an amount becomes," this means that the initial amount which was deposited, increased due to the addition of interest charged on it over the time period. So, when the question is asked "what is amount?" It clearly states that you need to find the principal amount not the amount at the end of the period. 

Solution:

Step 1: 
            P= ?
            T= 4 years
            R = 15% p.a
            SI = ?
            A = 8,800

Step 2: 
            A = P+PTR/100  
            A = P [1+TR/100] 
            8800 = P [1+ ( 4 x 15)/100]

Step 3: 
            8800 = P[8/5]

Step 4: 
            P = (8800 x 8) / 5

Step 5: 
            P = 5500
Therefore, principal amount deposited at the starting of the time period is Rs.5500.


Smart Method

This problem is solved using the percentage and cross multiplication method.
Solution: 

  •       We know the Rate of Interest per annum and the number of years it was deposited       for and the amount that was deposited.
  •        So, we have 4 years for which the rate of interest is 15% per annum. 
  •           As per the concept of ratio and equivalent proportionality, we can cross multiply the    amount with the principal percentage and unknown principal with the amount      percentage. 
  •          Now, for the 4 years the rate of interest will be-                                                               

Step 1: 
          15 x 4 (i.e) 60%

Step 2:
            We know,
            A = P + SI
            A = 100% (as we know the principal amount is 100%) + 60% ( from the above                                          calculation)
            A = 160%
            Now, A is nothing but 160% i.e. Rs.8,800

Step 3:
                                                        Simple Interest and Compound Interest
    By cross multiplication we get,
          = 8,800 x 100 / 160
          = 5500
Therefore, principal amount deposited initally is Rs.5,500.

Did you notice how the application of smart method made the process super fast.
Just two steps and Solved! 

How to Find Simple Interest and Compound Interest - Module 2

Questions on compound interest are the most common and simple type of questions asked in competitive exams. But, often we tend to skip them due to the complex procedure involved in solving them. However, you can solve them by just putting in a little effort via using Smart Method.


Example 1: How to Find Simple Interest Compound Interest- Module 2 


Problem: What will be the compound Interest on Rs.5000 for 2 years at the rate of 12%p.a?

Regular Method:

Solution:


Step 1 :
             P = 5000
             T = 2 years
             R = 12% p.a
             CI = ?

Step 2 : 
             Compound Interest = P [(1+ R/100)ⁿ-1)]
Step 3: 
            Compound Interest  = 5000 [{(1+ 12/100}² -1]
                                             = 5000[{112/100}² -1]
                                             = 5000[{28/25}² -1]
                                             = 5000[{112/100}² -1]
                                             = 5000[(784/625)-1
                                             = 5000[159/625]
 Step 4 : 
             Compound Interest = 8 × 159
             Compound Interest = 1272
Therefore, Compound Interest will be Rs.1272 at the end of 2 years.


Smart Method:

Whenever there are two percentages given to us, we need to find the effective percentage of these percentages by using the formula:

Simple Interest and Compound Interest
Step 1 :
                  Here, In compound interest
                 a = 12%
                 b=  12%
 Now, let's calculate the Compound Interest.

     Step 2: 
                 Compound Interest = 12+12+12% of 12% (Additional Interest)                             
                 Compound Interest = 12+12+12100
                 Compound Interest = 12+ 12+1.44
                 Compound Interest =  25.44
                                                                                                                         
Step 3:
As per the concept of ratio and equivalent proportionality, we can multiply the amount of the principal with the percentage of the interest and the percentage of the principal with the unknown interest amount to find the Interest amount.
        
Simple Interest and Compound Interest
By using the cross multiplication percentage method we get,               
Compound Interest = 25.44 x 5000/100

Step 4: 
            Compound Interest = 1275
Therefore, the compound interest will be Rs.1275 at the end of 2 years.

How to Find Simple Interest and Compound Interest- Module 2

Problem: Manish deposited some amount in a bank at the rate of 6% p.a for 2 years at compound interest. How much was deposited if he gets Rs.11236 on maturity?

Smart Method

Solution:

Step 1:

            P = ?
            R = 6% p.a
            T = 2 years.
            A = 11236
Compound Interest = 6 + 6 + 6% of 6% ( based on net percentage concept)
Compound Interest =  6 + 6 + 0.36
Compound Interest = 12.36

Step 2:
             A = P + CI
             A = (100 + 12.36) % ( As we know that principal is always 100%)
             A = 112.36%

Step 3: 
As per the concept of ratio and equivalent proportionality, we can cross multiply the amount with the principal percentage and the amount percentage with the unknown principal amount to find the Principal amount.


Simple Interest and Compound Interest
Step 4: 
            P = 10000 (By cross multiplication)
Therefore, Manish deposited Rs.10000.

Practice these questions using this smart method as it will help you to reach the solution in less than 20 seconds. Thus, save your time!

Stay tuned for more different categories of questions on Simple Interest and Compound Interest. 

Do comment below if you have any queries on this topic. 
Simple Interest and Compound Interest

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