Simple Interest

When a person lends money to a borrower, the borrower usually has to pay an extra amount of
money to the lender. This extra money is what we call the interest. We can express this interest
in terms of the amount that the borrower takes initially. If the interest on a sum borrowed for a
certain period is reckoned uniformly, then it is called simple interest or the flat rate. Before
starting the formula for the simple interest, let us first state some terms that we will use in the
formula.

Principal: The money borrowed or lent out for a certain period is called the principal or the sum.

Interest: Interest is the extra money that the borrower pays for using the lender’s money.

Understand the Difference Between Simple Interest and Compound Interest here.

Formula For The Simple Interest

Let the principal amount be equal to P. Let the rate at which the interest is levied is equal to R%
per annum (per year). let the time for which the amount is lent = T years. Then we can write:

Simple Interest = [{P×R×T}/100]

We can also calculate the Principal amount as P = [{100×(Simple Interest)}/(R×T)].

Similarly, we can write the time T as equal to T = [{100×(Simple Interest)}/P×R].

Now let us solve some examples to get acquainted with these formulae.

Example 1: Find the simple interest on Rs. 68,000 at 16(2/3)% per annum for a period of 9
months?

A) Rs. 8500 B) Rs. 3200 C) Rs. 2100 D) Rs. 4300

Answer: Here, P = Rs. 68000, R = 50/3% per annum and T = 9/12 years = 3/4 years. Note that
the time has been converted into years as the rate is per annum. The units of rate R and the time
T have to be consistent. Now using the formula for the simple interest, we have:

S.I. = [{P×R×T}/100]; therefore we may write: S.I. = Rs. [68000×(50/3)×(3/4)×(1/100)] = Rs.

8500.

In some cases the days of the start and the days when we calculate the interest are present. We
don’t count the day on which we deposit the money. However, we do count the day on which we
withdraw the money.

Access Important Practice Questions for Simple Interest here.

Solved Examples For You

Example 3: Khan borrows some money at the rate of 6% p.a. for the first two years. He borrows
the money at the rate of 9% p.a. for the next three years, and at the rate of 14% per annum for the
period beyond five years. If he pays a total interest of Rs. 11400 at the end of nine years, how
much money did he borrow?

A) Rs. 12000 B) Rs. 21000 C) Rs. 37000 D) Rs. 63000

Answer: Let ‘x’ be the sum that Khan borrows. Then the total simple interest that Khan pays is
the sum of the interests. We can write from the formula of the simple interest, [x×6×2]/100 +
[x×9×3]/100 + [x×14×4]/100 = Rs. 11400.

Therefore we can write, 95x/100 = 11400 or x = Rs. 12000 and hence the correct option is A) Rs.
12000.

Example 4: The simple interest on a certain sum of money for 2(1/2) years at 12% per annum is
Rs. 40 less than the simple interest on the same sum for 3(1/2) years at 10% per annum. Find the
sum.

A) Rs. 600 B) Rs. 666 C) Rs. 780 D) Rs. 800

Answer: Let the sum be Rs. a. Then we can write: [{x×10×7}/{100×2}] – [{x×12×5}/{100×2}]
= 40.. This can be written as: 7x/20 – 3x/10 = 4o. Therefore we have x = Rs. 800

Hence the sum is Rs. 800 and the correct option is D) Rs. 800.

Example 5: A man took a loan from a bank at the rate of 12 % p.a. simple interest. After three
years he had to pay Rs. 5400 interest only for the period. The principal amount borrowed by him
was:

A) Rs. 12000 B) Rs. 11000 C) Rs. 14000 D) Rs. 15000

Answer: Here we have, the principal = Rs. [{100×5400}/{12×3}] = Rs. 15000. Thus the correct
option is D) Rs. 15000.

Example 6: Khan invests a certain amount in three different schemes A, B and C with the rate of
interest 10% p.a., 12% p.a. and 15% p.a. respectively. If the total interest that accumulates in one
year was Rs. 3200 and the amount he invests in scheme C was 150% of the amount he invests in
Scheme A and 240% of the amount he invests in Scheme B, what was the amount he invests in
scheme B?

A) Rs. 4000 B) Rs. 5000 C) Rs. 6000 D) Rs. 7000

Answer: Let x, y and z be the amounts that Khan invests in schemes A, B and C respectively.
Then, we can write using the formula for S.I., : [{x×10×1}/100] + [{y×12×1}/100] +
[{z×15×1}/100] = Rs. 3200. Also, we have the conditions that 10x + 12y + 15z = Rs. 320000.

Now, we have z = 240% of y = (12/5)y. And, z = 150% of x = (3/2)x or in other words we can
write:

x = (2/3)z = [(2/3)×(12/5)]y = (8/5)y.

Combining the above equations, we have:

16y + 12y + 36y = Rs. 320000 or in other words, we can write 64y = Rs. 320000 and y = Rs.
5000.

Therefore the sum that Khan invests in scheme B = Rs. 5000 and the correct option is B) Rs.
5000.

Practice Questions
Q 1: Divide Rs. 2379 into 3 parts so that their amounts after 2,3 and 4 years respectively may be
equal, the rate of interest is 5% per annum at simple interest. The first part is:

A) Rs. 969 B) Rs. 828 C) Rs. 890 D) Rs. 234

Answer: B) 828

Q 2: An amount of Rs. 100000 is invested in two types of shares. the first yields an interest of
9% p.a. and the second, 11% p.a. If the total interest at the end of one year is 9(3/4)%, then the
amount invested in each share was:

A) Rs. 62500; Rs. 37500 B) Rs. 5733; Rs. 7865 C) Rs. 7297; Rs. 9865
D) Rs. 5242; Rs. 8906

Ans: A) Rs. 62500; Rs. 37500

Compound Interest
In simpler terms compound interest is explained as interest on interest. In compound interest, the
interest of one year is added back into the amount and after that new interest is calculated. The
following formula given below will help you calculate the amount. In the given formula, the
principal amount is also given with compound interest included in it.

Source: quora.com

A = P(1 + R/100)^N

Here, P is the principal amount, R stands for rate of interest, N is for a number of years, A is the
amount inclusive of principal and interest. There are other formulas used for compound interest
as well for calculating interest half yearly as well as quarterly.

Compound interest for half-yearly : A = P(1 + R/100 x 2)^2N

Compound interest for quarterly: A = P(1 + R/100 x 4)^4N

If the total amount and the principal amount is given to you and you want to calculate compound
interest than the formula is,
CI = A – P

The Difference of Interest

In exams, there are questions asked where you need to find the difference between compound
interest and simple interest for ‘x’ amount of years. If the difference asked is for two and three
years then we have formulas with which you can calculate the difference very easily.

If the difference between compound and simple interest is asked for two years than the
difference is:
P(R)²/100², where P is the principal amount and R is the rate of the interest given to us.

When the difference between compound and simple interest is asked for three years than the
formula will be:
3 x P (R/100)³ + P (R/100)², here also P is the principal amount and R is the rate of interest.

Example Based on Calculating Simple Compound Interest

1. Abhay invested Rs.1500 for a period of three years. The interest charge on the amount is 20%
per annum. What will be the interest compounded annually?

A. Rs. 1060 B. Rs. 1080 C. Rs. 1092 D. Rs. 1000

Here we need to calculate the amount of 20 % compound interest charged annually. We will use
the above formula to calculate this compound interest. To calculate the compound interest, the
formula is,

A = P ( 1 + R/100)^N. Here, P is Rs. 1500, R is 20 % and N is 3 years. So after putting the

values in the above formula, the equation will be,

A = 1500(1 + 20/100)³ => 1500(120/100)³ => 1500(1.2)³ => 1500 x 1.728

Therefore, A = 2592

Thus, the total amount compounded at the end of three years is Rs. 2592. But we need to find a
compound interest that Abhay earned in these three years. So, the interest will be,

CI = A – P

Where A is the total amount and P will be the principal amount. Here A is Rs. 2592 and P are Rs.
1500. Putting these values in the above formula the result will be,

A = 2592 – 1500
A = 1092. So, the correct answer is C.

Example Based on Calculating Amount from the Compound Interest

1. Shyam borrowed a certain sum of money and pays it back in 2 years in two equal yearly
installments. The compound interest is charged at 5 % per annum and he pays back Rs. 441
every year, what was the amount that Shyam borrowed?
A. Rs. 810 B. Rs. 820 C. Rs. 840 D. Rs. 850

Here we are given the amount of interest for two years that Shyam pays. And we are required to
find the total amount he borrowed. So, we need to solve this question inversely. As given in the
question, the loan principal that Shyam borrowed = Present value of Rs. 441 that is payable after
1 years + present value of Rs. 441 payable after 2 years.

Thus the total amount that Shyam borrowed or the loan principal = 441/(1.05) + 441/(1.05)² =
420 + 400 = Rs. 820. So, the total amount that Shyam borrowed was Rs. 820. Thus, the correct
answer is B.

Practice Questions
1. Ajay invested half of his savings in a mutual fund that paid simple interest for 2 years and
received Rs. 550 as interest. He invested the remaining in a fund that paid compound interest,
interest being compounded annually, for the same 2 years at the same rate of interest received
Rs. 605 as interest. What was the value of his total savings before investing in these two bonds?

A. Rs. 2750 B. Rs. 2850 C. Rs. 2900 D. Rs. 2950

The correct answer is A.

2. If the simple interest is 10.5 % annual and compound interest is 10 % annual, find the
difference between the interests after 3 years on a sum of Rs. 2000.

A. Rs. 30 B. Rs. 24 C. Rs. 32 D. Rs. 22

The correct answer is C.

3. What will be the compound interest at the rate of interest of 10 % for 3 years on that principle
which in 3 years at the rate of 10 % per annum gives Rs? 300 as simple interest?

A. Rs. 310 B. Rs. 331 C. Rs. 333 D. Rs. 330

The correct answer is B.

4. The compound interest on Rs. 16,000 for 3 years is Rs. 2522. What will be the rate of interest?

A. 8 % B. 6 % C. 4 % D. 5 %

The correct answer is D.

5. If interest on a certain sum for 3 years at 20 % per year is Rs. 728. What would be the simple
interest for the same period on the same amount?

A. Rs. 660 B. Rs. 720 C. Rs. 600 D. Rs. 690

The correct answer is C.

Data Sufficiency
Data sufficiency covers many different topics of quantitative aptitude. In data sufficiency,
usually, a question is followed by two or three statements. You need to determine whether any of
the statements individually or together are required to find the answer. You are not required to do
the calculation, you just have to check whether with the help of given data you can find the
answer or not. Data sufficiency has many types of questions. And today we will be discussing on
CI and SI-based data sufficiency.

In compound interest and simple interest you just have to calculate the rate of interest based on
the number of years given to you. The rate of interest and the total amount has to be calculated
on the based of the formulas.

The formula to calculate simple interest

I = P x R x N/100, where p is the principal amount, r is the rate of interest, and n is the number
of years

The formula to calculate compound interest

A = P (1 + R/100)n

Here, A is the total amount i.e. principal + interest, P is the principal amount, R is the rate of
interest, and N is the number of years. There are other two formulas as well to calculate
compound interest quarterly and half-yearly.

Compound interest for quarterly, A = P(1 + R/100 x 2)²n

Compound interest for half-yearly, A = P(1 + R/100 x 4)4n

Before solving the questions, here are the directions for the questions:

Each question given will be followed by two statements.

 If statement I alone is sufficient, but statement II alone is not sufficient mark (A)
 Statement II alone is sufficient, but the statement I alone is not sufficient mark (B).
 If both the statements I and II together are sufficient, but neither statements alone is
sufficient mark (C).
 Each statement alone is sufficient mark (D).
 If statement I and II together are not sufficient mark (E).

Solved Examples

1. Find the total worth of Ram’s assets.

The statement I: A compound interest at 10% on his assets, followed by a tax of 4% on the
interest, fetches Ram Rs. 1500 this year.
Statement II: The interest is compounded once every four months.

So, as per the data are given to us in this question, we need to find the total worth of Ram’s
assets and for that two statements are given to us. We will start solving the question using
statements alone and if we are not able to find the answer then we will solve the question using
both the statements.

Using statement I, we can see that the compound interest i.e. 10% is given to us. Than 4%
interest on this compound interest is also given to us. And this interest will be a total of Rs. 1500.
But to calculate the total worth we need to have a duration of the compound interest as well as
total amount or the principal amount given to us. This data cannot be found in statement I. Thus,
a statement I is insufficient to determine the answer.

In statement II only the duration on which compound interest can be calculated is given to us.
But there is no other information or data given which can be useful to find the answer. Thus,
statement II is also insufficient to determine the answer. So, both the statements alone cannot
determine the answer. But when you combine statement I and II than you can see that all the
information is given to us and you can determine the total worth of Ram’s assets. So, the correct
answer is option C.

Practice Questions
Directions for the question are same as above.

1. If today the price of the item is Rs. 3500, what was the price of the item exactly 3 years ago?
The statement I: Today the price of the item is exactly 1.21 times its price exactly 3 years ago.
Statement II: The price of the item increased by 10% during these 3 years.

The correct answer is D.

2. What was Ajay’s yearly income on government bonds of the face value Rs? 50000?

The statement I: The certificates yielded half-yearly interest at 10% per year.
Statement II: Ajay had the bond for 10 years.

The correct answer is A.

3. Find the investment of shopkeeper on 200 antique pieces in Rs.

The statement I: Out of 200 pieces, 38 were broken and he sold the remaining at Rs. 480 per
piece.
Statement II: He gained 8% on the investment.

The correct answer is C.

4. Hari decided to lend Manoj a sum of Rs. 5000 at the end of some years. The simple interest
charged is 12% per annum. Thus, find the number of years Hari lends the sum of money to
Manoj.

Statement I: The total interest at the end of 5 years is Rs.2500.

Statement II: Because of money returned by Manoj t0 Hari, Hari will be able to buy a television
of Rs. 9999.

The correct answer is B.

Difference Between the Compound and Simple Interest

Sometimes you are given a situation and you have the option of repaying more it through
compound interest or through simple interest. Obviously, you will choose simple interest because
it is a cheaper option. Also, in compound interest, you are asked to pay the principal amount by
levying interest on interest. But you would still need to determine the difference between the
compound and simple interest. If the difference asked is for either two or three years than you
can easily solve it through the formulas. Here are the formulas to the calculated difference in
interests.

Learn more about Simple and Compound Interest in more detail here.
If the difference between compound and simple interest is of two years than,
Difference = P(R)²/(100)²
Where P = principal amount, R = rate of interest

If the difference between compound and simple interest is of three years than,
Difference = 3 x P(R)²/(100)² + P (R/100)³.
Here also, P = principal amount, R = rate of interest

Test yourself by answering these 25 Practice Questions set of SI an CI.

Solved Examples

Q. The difference between the compound and simple interest on a certain sum at 12% per annum
for two years is Rs. 90. What will be the value of the amount at the end of 3 years if compounded
annually?

Ans: Here, in this question, the difference is already given to us and we are required to find the
principal amount. And using that principal amount we are required to find the amount
compounded after three years. The difference is given for two years. So, the formula will be,

Difference = P(R)²/100²

Now, putting the values into the equation, we will find that,

90 = P(12)²/(100)²
90 x 100²/12² = P
P = Rs. 6250

Now, calculating the compound interest on Rs. 6250 will be,

A = 6250(1 + 12/100)³
A = 6250(112/100)³ => 6250(1.12)³ => Rs. 8780.80

So, the compounded amount after three years will be Rs. 8780.80

Learn more about the Quantitative Aptitude here.

Practice Questions
1. The ratio of interest between the compound and simple interest after two years on a sum of
money to that after three years on the same sum, at the same rate of interest, is 11: 37. What will
be the rate of interest?

A. 36.36 % B. 34.24 % C. 36.26 % D. 38.96 %

The correct answer is A.

2. What will be the difference between the simple interest on a principal of Rs? 500 is calculated
at 5% per year for 3 years and 4% per year for 4 years?

A. Rs. 5 B. Rs. 40 C. Rs. 20 D. Rs. 10

The correct answer is A.

3. If it is given that simple interest is 10.5% annually and compound interest is 10% annually,
what will be the difference between the interests on a sum of Rs? 2000 after 3 years?

A. Rs. 20 B. Rs. 30 C. Rs. 32 D. Rs. 22

The correct answer is C.

4. Raj decided to borrow a certain sum at the certain rate of interest from a bank which charges
simple interest. He deposits the same sum at the same interest rate in another bank which offers
compound interest. If the ratio of the difference of interests calculated by both the banks after 3
years to that after 2 years is 31/10, find the rate of interest.

A. 3.1 % B. 10 % C. 31 % D. 5 %

The correct answer is B.