10 July 2015

Important Formulas - Compound Interest - Tricks & Shortcuts

Compound Interest:

When compound interest is applied, interest is paid on both the original principal and on earned interest.
So for one year Simple interest and Compound interest both are equal.
Suppose if you make a deposit into a bank account that pays compounded interest, you will receive interest payments on the original amount 
that you deposited, as well as additional interest payments.

This allows your investment to grow even more than if you were paid only simple interest.
So Amount at the end of 1st year (or Period) will become the principal for the 2nd year (or Period) and
Amount at the end of 2nd year (or Period) becomes the Principal of 3rd year.

Amount = Principal + Interest 

A= P (1+r/100) ^n 

A= Amount, 
P= Principal, 
r= Rate %, 
n= no. of years.
So Compound Interest = [P (1+r/100) ^ n - P] 
= P [(1+r/100) ^ n – 1]


1.When  interest is compounded annually, 
Amount = P(1+r/100)^n

2.When interest  is compounded half yearly,
Amount = P(1+(r/2)/100)^2n

3.When interest is compounded Quarterly,
Amount =P(1+(r/4)/100)^4n

4.When interest is compounded annually but time is in fraction, say 3 whole 2/5 year 
Amount = P(1+r/100)^3×(1+(2r/5)/100)

5.When Rates are different for different years, say r1%, r2%, and r3% for 1st, 2nd and 3rd year respectively.

Amount = P(1+r1/100)×(1+r2/100)×(1+r3/100).

Present worth of Rs. x due n years hence is given by:
Present Worth = x/(1+r/100)

Difference between Compound Interest & Simple interest Concept For Two years 
CI – SI =P(r/100)^2
For Three Year 
CI – SI =P(r^2/(100^2 ))×(300+r)/100)
For  Two year 

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