Aptitude: Compound Interest Basics - Important Formulas for Exams

We hope you all have read our previous post on Interest and its classifications (Simple Interest). In this post we are going to see about Compound Interest.

Compound Interest

Compound Interest is a modified version of Simple interest with some basic difference between them. In compound interest every year or period (as per the situation) the interest amount calculated for the previous period is added to the principle amount and from the new principle amount, the interest for the next period is calculated and so on for the remaining years.

Basic formulas:

Compound Interest = Amount - Principle Amount

Let us calculate the Compound interest.

For example when a person borrows a sum of Rs.1000 (this amount is the principle amount) with the interest rate of 10% p.a (Interest rate Per Annum) for two years (time period) under Compound Interest.

Using the formula first we need to calculate the Amount = 1210

Then we need to calculate the Compound Interest = Amount - Principle = 1210 - 1000 = 121

More Model sums will be updated Soon...