Half-yearly

A = P ( 1 + r/2)2n and C.I = A - P

where, P = principal
R = rate in percent p.a.( per annum i.e. annually)
n = number of years.
Examples :
1) Compute the compound interest on $12,000 for 2 years ate 20% p.a. when
compounded half-yearly.
Solution :
Here, P = $12,000, R = 20% and n = 2 years.
Amount after 2 years = P ( 1 + r/2)
= 12,000 ( 1 + 0.20/2)
= 12,000 ( 1 + 0.1)
= 12,000 (1.1)

2n

2x2

= 12,000 x 1.4641
Amount = $ 17569.20
C.I = A - P
C.I = 17569.20 - 12000
C.I = $ 5569.20
_______________________________________________________________
2) Find the compound interest on $1,000 at the rate of 10% p.a. for 18 months
when interest is compounded half-yearly.
Solution :
Here, P = $1,000, R = 10% and n = 18 months = 18/12 = 3/2 years.
Amount after 2 years = P ( 1 + r/2)
= 1,000 ( 1 + 0.10 /2)

2 x 3/2

2n

6/2

= 1,000 ( 1 + 0.05)
= 1,000 (1.05)

= 1,000 x 1.157625
Amount = $ 1157.625
C.I = A - P
C.I = 1157.625 - 1000
C.I = $ 157.625
________________________________________________________________________
3) What sum will become $9,724.05 in 2 years, if the rate of interest is 10%
compounded half yearly?
Solution :
Here, A = $9,724.05, R = 10% and n = 2years , P =?.
Amount after 2 years = P ( 1 + r/2)
9,724.05= P ( 1 + 0.10 /2)
9,724.05= P ( 1 + 0.05)
9,724.05= P (1.05)

2n

2x2

9,724.05= P x 1.21550625
P = 9,724.05/1.21550625 P = $ 8000

////
It is very easy to calculate compound interest by using formula.
We can derive general formulae for calculating compound interest in various cases,
as given below.
Compound Interest by Using Formula, when it is calculated annually
Case I:

When the interest is compounded annually

Let principal = $ P, rate = R % per annum and time = n years.
Then, the amount A is given by the formula
A = P (1 + R/100)n
Therefore, compound interest = (amount) - (principal).
1. Find the amount of $ 8000 for 3 years, compounded annually at 5% per
annum. Also, find the compound interest.
Solution:
Here, P = $ 8000, R = 5 % per annum and n = 3 years.
Using the formula A = $ P(1 + R/ 100)n
amount after 3 years = $ {8000 (1 + 5/100)3}
= $ (8000 21/20 21/20 21/20)
= $ 9261.
Thus, amount after 3 years = $ 9261.
And, compound interest = $ (9261 - 8000)
Therefore, compound interest = $ 1261.

2. Find the compound interest on $ 6400 for 2 years, compounded

annually at 71/2 % per annum.
Solution:
Here, P = $ 6400, R % p. a. and n = 2 years.
Using the formula A = P (1 + R/100)n
Amount after 2 years = [6400 {1 + 15/(2 100)} 2]
= $ (6400 43/40 43/40)

=$ 7396.
Thus, amount = $ 7396
and compound interest = $ (7396 - 6400)
Therefore, compound interest = $ 996.

Case 2:
When the interest is compounded annually but rates are different for
different years
Let principal = $ P, time = 2 years, and let the rates of interest be p % p.a. during
the first year and q % p.a. during the second year.
Then, amount after 2 years = $ {P (1 + P/100) (1 + q/100)}.
This formula may similarly be extended for any number of years.

1. Find the amount of $ 12000 after 2 years, compounded annually; the

rate of interest being 5 % p.a. during the first year and 6 % p.a. during the
second year. Also, find the compound interest.
Solution:
Here, P = $12000, p = 5 % p.a. and q = 6 % p.a.
Using the formula A = {P (1 + P/100) (1 + q/100)}
amount after 2 years = $ {12000 (1 + 5/100) (1 + 6/100)}
= $ (12000 21/20 53/50)
=$ 13356
Thus, amount after 2 years = $ 13356
And, compound interest = $ (13356 12000)

Therefore, compound interest = $ 1356.

Case 3:
When interest is compounded annually but time is a fraction
For example suppose time is 23/5 years then,
Amount = P (1 + R/100)2 [1 + (3/5 R)/100]

1. Find the compound interest on $ 31250 at 8 % per annum for 2 years.

Solution Amount after 23/4 years
Solution:
Amount after 23/4 years
= $ [31250 (1 + 8/100)2 (1 + (3/4 8)/100)]
= ${31250 (27/25)2 (53/50)}
= $ (31250 27/25 27/25 53/50)
= $ 38637.
Therefore, Amount = $ 38637,
Hence, compound interest = $ (38637 - 31250) = $ 7387.

Compound Interest by Using Formula, when it is calculated half-yearly

Interest Compounded Half-Yearly
Let principal = $ P, rate = R% per annum, time = a years.
Suppose that the interest is compounded half- yearly.
Then, rate = (R/2) % per half-year, time = (2n) half-years, and
amount = P (1 + R/(2 100))2n

Compound interest = (amount) - (principal).

1. Find the compound interest on $ 15625 for 11/2 years at 8 % per annum
when compounded half-yearly.
Solution:
Here, principal = $ 15625, rate = 8 % per annum = 4% per half-year,
time = 11/2 years = 3 half-years.
Amount = $ [15625 (1 + 4/100)3]
=$ (15625 26/25 26/25 26/25)= $ 17576.
Compound interest = $ (17576 - 15625) = $ 1951.

2. Find the compound interest on $ 160000 for 2 years at 10% per annum
when compounded semi-annually.
Solution:
Here, principal = $ 160000, rate = 10 % per annum = 5% per half-year, time = 2
years = 4 half-years.
Amount = $ {160000 (1 + 5/100)4}
=$ (160000 21/20 21/20 21/20 21/20)
compound interest = $ (194481- 160000) = $ 34481.

Compound Interest by Using Formula, when it is calculated Quarterly

Interest Compounded Quarterly
Let principal = $ P. rate = R % per annum, time = n years.
Suppose that the interest is compounded quarterly.

Then, rate = (R/4) % Per quarter, time = (4n) quarters, and

amount = P (1 + R/(4 100))4n
Compound interest = (amount) - (principal).

1. Find the compound interest on $ 125000, if Mike took loan from a bank
for 9 months at 8 % per annum, compounded quarterly.
Solution:
Here, principal = $ 125000,
rate = 8 % per annum = (8/4) % per quarter = 2 % per quarter,
time = 9 months = 3 quarters.
Therefore, amount = $ {125000 ( 1 + 2/100)3}
=$ (125000 51/50 51/50 51/50)= $ 132651
Therefore, compound interest $ (132651 - 125000) = $ 7651.