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Compound Interest Concept & Shortcut

Methods

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Methods(/aptitude)
CompoundInterestConcept&
In compound interest, the interest for each period is added ShortcutMethods
to the principle before interest is calculated for the next (/aptitude/compoundinterest)
period. With this method the principle grows as the interest MixtureandAlligationShortcut
Methods(/aptitude/mixture
is added to it. This method is mostly used in investments such
is added to it. This method is mostly used in investments such andalligation)
as savings account and bonds. SquareShortcutMethod
(/aptitude/square/square
To understand compound interest clearly, lets take an shortcutmethod)
example. PipesAndCisternsShortcut
Methods(/aptitude/pipesand
1000 is borrowed for three years at 10% compound interest.
cisterns)
What is the total amount after three years?
ShortcutMethodForProfitAnd
You can understand the process of compound interest by Loss(/aptitude/profit
image shown below. loss/profitandlossshortcut)
BoatsandStreamsShortcut
Methods(/aptitude/boatsand
streams)
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Year Principle Interest (10%)Amount
1st 1000 100 1100
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2nd 1100 110 1210

3rd 1210 121 1331 Bethefirstofyourfriendstolikethis

Difference between Simple Interest and compound

interest
After three years,
In simple interest, the total amount would be 1300
And in compound interest, the total amount would be 1331.

Basic Formulas of Compound Interest

If A = Amount
P = Principle
C.I. = Compound Interest pricedrop pricedrop
T = Time in years
R = Interest Rate Per Year

pricedrop

Shortcut Formulas for Compound Interest

Rule 1: If rate of interest is R1% for first year, R2%
for second year and R3% for third year, then

pricedrop
Example

Rule 2:
If principle = P, Rate = R% and Time = T years then
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1. If the interest is compounded annually:

Interesting Facts

2. If the interest is compounded half yearly (two times in

year):
 3. If the interest is compounded quarterly (four times in
year):

Example

Rule 3: If difference between Simple Interest and

Compound Interest is given.
India's first rocket was
If the difference between Simple Interest and Compound brought on cycle and a
Interest on a certain sum of money for 2 years at R% satellite on bullock cart.
rate is given then

Example

If the difference between Simple Interest and Compound

Interest on a certain sum of money for 3 years at R% is
given then

Example


Rule 4: If sum A becomes B in T1 years at compound
interest, then after T2 years

Example

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