Compound Interest
View Questions of Compound Interest
Quantitative Aptitude - Compound Interest
1. Compound Interest Basics
- Formula: \( A = P \left(1 + \frac{R}{100n} \right)^{nt} \), where P = principal, R = annual rate, n = compounding frequency, t = years, A = amount.
- Interest earned = A − P.
2. Shortcut Methods
- Annual compounding (n = 1): set \( (1 + R/100)^t \).
- Use binomial expansion for 2-3 years when R is small: \( P(1 + tR/100 + \frac{t(t−1)}{2}(R/100)^2) \).
- Convert CI to approximate interest rate per period when compounding monthly/quarterly.
3. Quick Tips
- For annual growth, double time ≈ \( 72/R \) (Rule of 72).
- Use (1 + R/100)^t tables for recurring exam values.
4. Mistakes to Avoid
- Using simple interest formula instead of compound for reinvested interest.
- Not adjusting R and n to the same time unit.
5. Revision Checklist
- Practice annual, semi‑annual, monthly CI problems.
- Be adept at switching between SI and CI.
Summary: Apply exact formula, use expansion for few years, use rule of 72 for estimation in MCQs.
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