Navigate the interest topic with these practice questions

This article is in continuation to the last article on preparation for the Sub-Inspector of Police recruitment exam. Here are some practice questions and answers along with explanations on the Simple Interest and Compound Interest topic.

1. Rs 7,500 is borrowed at compound interest at the rate of 4% per anum. What will be the amount to be paid after one year, if the interest is compounded half-yearly?

A. Rs 6,600 B. Rs 7,803
C. Rs 7,603 D. Rs 7,853
Ans: B

Explanation:
Given that P = 7500, R = 4, n = 1
A = P (1 + R/200)2n
= 7500 × 51/50 × 51/50
A = Rs 7,803

2. A certain sum grows at compound interest of 10% p.a. for 3 years. What is the overall effective simple interest rate p.a. for the same period?

A. 11% B. 11 1/30 % C. 11 1/3 % D. 12%
Ans: B

Explanation:
Compound interest
= P [(1 + r/100)n – 1]
P[(1 + r/100)n – 1] = PTR/100
[(1 + 10/100)3 – 1 ] = 3R/100
331/30 = R
Simple interest effected = R = 11 1/30%

3. A sum of money put at compound interest amount to Rs 672 in two years and to Rs 714 in three years. Then the rate of interest per annum is

A. 6 1/4 % B. 12 1/2 %
C. 10% D. 5%
Ans: A

Explanation:
Given that difference between
interest = (714 – 672) = 42
In compound interest, the extra amount which is added every year is nothing but interest on interest.
We can clearly say that 42 is interest on 672.
Rate of interest R = 42 × 100/672
= 6 1/4 %

4. The difference between the compound interest payable half–yearly and the simple interest
on a certain sum lent out at 10% p.a. for one year is Rs 25, then the sum is

A. Rs 8,000 B. Rs 8,500
C. Rs 9,000 D. Rs 10,000
Ans: D

Explanation:
Let p = x, r = 10%, T = 1
S.I = PTR/100 = X/100
Compound interest
= p [(1 + R/100)n – 1]
Compounded half-yearly means
r value will half.
C.I = X [( 1 + 5/100)2 – 1 ]
41X/400 – X/100 = 25
X = Rs 10000

5. If the compound interest on a certain sum of money at 5% for three years is Rs 1,261 what is the simple interest?

A. Rs 1,200 B. Rs 1,250 C. Rs 1,300 D. Rs 1,240
Ans: A
Explanation:
Given that
C.I = Rs 1261, T = 3, R = 5%
Compound interest
= p [( 1 + r /100)n – 1]
p [(1 + 5/100)3 – 1] = 1261
p ( 1261/8000) = 1261 Therefore, p = 8000
S.I = 8000 × 5 × 3/100
= Rs 1200

6. The difference between the compound interest and the simple interest on a certain sum of money for a period of 2 years is Rs 900. If the rate of interest is 15% p.a., then the sum is

A. Rs 40,000
B. Rs 40,500
C. Rs 45,000
D. Rs 38,000
Ans: A
Explanation:
We have a formula for difference between the compound interest and simple interest on a certain sum of money for period of 2 years
C.I – S.I = P (R/100)2
900 = P (15/100)2
P = Rs 40,000

7. If the simple interest on a sum of money at 5% per annum for 3 years is Rs 1,200, then the compound interest on the same sum for the same period at the same rate is?

A. Rs 1,621 B. Rs 1,261 C. Rs 1,126 D. Rs 2,611
Ans: B

Explanation:
Given that
R = 5%, T = 3, S.I = 1200
P = 100 × 1200/3 × 5 = 8000
Amount = P (1 + r/100)n
= 8000 (1 + 5/100)3 = 9261
Then C.I = 9261 – 8000
= Rs 1261

8. A sum of money doubles itself at compound interest in 15 years. In how many years will it become eight times?
A. 19 B. 30
C. 35 D. 45
Ans: D

Explanation:
If the principle = x
Given that sum of money doubles in 15 years i.e., 2x
It will become 8 times when it doubles 3 times
Then 15 × 3 = 45

To be continued…

Banda
Ravipal Reddy,
Director, SIGMA,
Sai Institute of General Mental Ability
Ph. 9491614131