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CA FOUNDATION: QUANTITATIVE APTITUDE · TIME VALUE OF MONEY

Compound interest (annual and half-yearly)

A = P(1 + i)^n where i = rate per period and n = number of periods. CI = A − P.

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Worked examples

Example 1 · level 1

Kapoor Electronics invests ₹1,80,000 at 10% p.a. compounded annually for 2 years. Find the compound interest (to the nearest rupee).

Show solution
  1. i = 10% per period, n = 2 periods.
  2. A = 1,80,000 × 1.1^2 = ₹2,17,800.
  3. CI = ₹2,17,800 − 1,80,000 = ₹37,800.

Answer: ₹37,800

Example 2 · level 2

Bansal Steels invests ₹1,40,000 at 8% p.a. compounded annually for 2 years. Find the compound interest (to the nearest rupee).

Show solution
  1. i = 8% per period, n = 2 periods.
  2. A = 1,40,000 × 1.08^2 = ₹1,63,296.
  3. CI = ₹1,63,296 − 1,40,000 = ₹23,296.

Answer: ₹23,296

Example 3 · level 3

Joshi Pharma invests ₹30,000 at 12% p.a. compounded half-yearly for 2 years. Find the compound interest (to the nearest rupee).

Show solution
  1. i = 6% per period, n = 4 periods.
  2. A = 30,000 × 1.06^4 = ₹37,874.31.
  3. CI = ₹37,874.31 − 30,000 = ₹7,874.31.

Answer: ₹7,874.31

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