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Difference Between Simple Interest And Compound Interest

CI and SI are two terms used in whole life of a person while studying or while doing business or financial transactions. But Difference between Simple Interest and Compound Interest is not known to every person. Here we are going to clear the concept of Interest, Simple Interest that is also known as SI and the Compound Interest also regarded as CI. Along with the description here we are also providing the formulas and Shortcuts to find CI, ST with ease.

Here on this page of recruitmentresult.com we have given the Compound Interest Formula, Simple Interest Formula and also the Distinguish between CI and SI. Candidates are advised to take a look..

Difference Between Simple Interest And Compound Interest

Here on this page we are describing each term separately so that it will become easier for candidate to understand the actual Difference between Simple Interest and Compound Interest

First of all we should know what is Interest?

Interest is the cost of acquiring cash, where the borrower pays an expense to the proprietor for utilizing the proprietor’s cash. The interest is commonly communicated as a rate and can be either simple or compounded. Simple interest is just in view of the principal measure of a credit, while compound interest depends on the principal sum and the amassed interest.

Check Here: Compound Interest Formula Derivation

Let’s take a look over the concept of Simple Interest:

Simple interest is ascertained by duplicating the principal sum by the interest rate and the quantity of periods in an advance. For the most part, simple interest paid or got over a specific period is a settled level of the principal sum that was obtained or loaned.

Formula of Simple Interest: Principal*Rate*Time

For instance, an understudy acquires a simple interest credit to pay one year of her school educational cost, which costs Rs.18,000, and the yearly interest rate on her advance is 6%. She reimbursed her credit more than three years and the measure of simple interest she paid was Rs.3,240 = Rs.18,000 x 0.06 x 3. The aggregate sum she reimbursed was Rs.21,240 = Rs.18,000 + Rs.3,240.

You Can Also Check: Simple Interest Questions

Now the Turn id for Compound Interest:

On the other hand, compound interest will be interest on interest. It is computed by duplicating the principal sum by the yearly interest rate raised to the quantity of compound periods. Rather than simple interest, compound interest gathers on the principal sum and the amassed interest of past periods.

Formula of Compound Interest:

In Compound Interest, Interest can be compounded at any interval, but the most common compounding intervals are

• Annual: once per year.
• Quarterly: four times per year
• Monthly: 12 times per year
• Weekly: 52 times per year
• Daily: 365 times per year

Hence the formula is:

CI = P (1+(r/n))nt

For example, if a student borrows a compound interest loan for college. The measure of compound interest that would be paid is Rs.18,000 x ((1.06)3-1) = Rs.3,438.29, which is higher than the simple interest of Rs.3,240. This is on the grounds that dissimilar to the simple interest, the compound interest collects on both the principal and the aggregated interest.

Difference Between Simple Interest And Compound Interest:

 Simple Interest Compound Interest Simple interest is well, simple. Each year, the interest is calculated as a percentage of the principal When you deposit money into an interest-bearing account, or take out a line of credit, the interest that accumulates is added to the principal, and the next interest calculation is done on both the principal and the interest.

Examples on Simple Interest:

Question: A sum of money at simple interest amounts to Rs. 815 in 3 years and to Rs. 854 in 4 years. The sum is:

1. 650
2. 690
3. 698
4. 700

Explanation:

S.I. for 1 year = Rs. (854 – 815) = Rs. 39.

S.I. for 3 years = Rs.(39 x 3) = Rs. 117.

Principal = Rs. (815 – 117) = Rs. 698.

Question: Mr. Thomas invested an amount of Rs. 13,900 divided in two different schemes A and B at the simple interest rate of 14% p. and 11% p. respectively. If the total amount of simple interest earned in 2 years be Rs. 3508, what was the amount invested in Scheme B?

1. 6400
2. 6500
3. 7200
4. 7500

None of these

Explanation:

Let the sum invested in Scheme A be Rs. x and that in Scheme B be Rs. (13900 – x).

Then,  (x * 14 * 2/ 100 ) +((13900 – x) x 11 x 2 ) / 100 = 3508

28x – 22x = 350800 – (13900 * 22)

6x = 45000

x = 7500.

So, sum invested in Scheme B = Rs. (13900 – 7500) = Rs. 6400.

Examples on Compound Interest:

A bank offers 5% compound interest calculated on half-yearly basis. A customer deposits Rs. 1600 each on 1st January and 1st July of a year. At the end of the year, the amount he would have gained by way of interest is:

1. 120
2. 121
3. 122
4. 123

Explanation:

The difference between simple and compound interests compounded annually on a certain sum of money for 2 years at 4% per annum is Re. 1. The sum (in Rs.) is:

1. 625
2. 630
3. 640
4. 650