CPT Chapter Simple and Compound interest With Anand.Duration: 6hrs 04 mins

Few things which we have covered

Index-
Basics of Interest
Simple Interest
Compound Interest
SI & CI Combined
Change in Interest Rate
ERR
Depreciation
Annuity
Mistake Problem

Why do we pay Interest?
Time Value of Money
Opportunity cost
Inflation
Liquidity Preference
Risk Factor

Basic Terms-
Principal (P)
Time (t)
Rate of Interest (r)
Interest (I)
Amount (A)

Examples-
S.I on Rs. 3500 for 3 years at 12% per annum is
(a) Rs. 1200 (b) 1260 (c) 2260 d) none of these

P = Rs. 8500, A = Rs. 10200, R = 12½ % SI, t will be.
(a) 1 yr. 7 mth. (b) 2 yrs. (c) 1 1h yr. (d) none of these

Rs.8,000 becomes Rs.10,000 in two years at simple interest. The amount that will become Rs.6,875 in 3 years at the same rate of interest is :
(a) Rs 4,850
(b) Rs.5,000
(c) Rs.5,500
(d) Rs.5,275

In how much time would the simple interest on a certain sum be 0.125 times the principal at 10% per annum?
(a) 1 1/4 Years
(b) 1 3/4 Years
(c) 2 1/4 Years
(d) 2 3/4 Years

The present value of Rs.10000 due in 2 years at 5% p.a. compound interest when the interest is paid on yearly basis is Rs.
(a) 9070 (b) 9000 (c) 9061 (d) None

Compound & Simple Interest Combined-

If the simple interest on a sum of money at 12% p.a. for two years is Rs.3,600. The compound interest on the same sum for two years at the same rate is :
(a) Rs.3,816
(b) Rs.3,806
(c) Rs.3,861
(d) Rs.3,860

The difference between compound and simple interest at 5% per annum for 4 years on Rs. 20000 is Rs.
(a) 250 (b) 277 (c) 300 (d) 310

The difference between the simple and compound interest on a certain sum for 3 year at 5% p.a. is Rs.228.75. The compound interest on the sum for 2 years at 5% p.a. is :
(a) Rs.3,175
(b) Rs.3,075
(c) Rs.3,275
(d) Rs.2,975

Change in Interest Rate-

The compound interest on half-yearly rests on Rs.10000 the rate for the first and second years being 6% and for the third year 9% p.a. is Rs. .
(a) 2200 (b) 2287 (c) 2285 (d) None

A person deposited Rs.5,000 in a bank. The deposit was left to accumulate at 6% compounded quarterly for the first five years and at 8% compounded semi-annually for the next eight years. The compound amount at the end of 13 years is :
(a) Rs.12621.50
(b) Rs.12613.10
(c) Rs 13613.10
(d) None

Nominal vs Effective Rate of Return

The effective rate of interest corresponding to a nominal rate 3% p.a payable half yearly is
(a) 3.2% p.a (b) 3.25% p.a (c) 3.0225% p.a (d) none of these

The effective rate equivalent to nominal rate of 6% compounded monthly is :
(a) 6.05
(b) 6.16
(c) 6.26
(d) 6.07

Methods of Depreciation-
Straight Line Method

Written Down Value (WDV Method)

Example-
A machine is depreciated at the rate of 20% on reducing balance. The original cost of the machine was Rs. 100000 and its ultimate scrap value was Rs. 30000. The effective life of the machine is
(a) 4.5 years (appx.) (b) 5.4 years (appx.)
(c) 5 years (appx.) (d) none of these

Features of Annuity-
Fixed Instalments paid
Time interval between two payments are same
Payment over a fixed period of time
First Instalment at the end of first period
Last Instalment doesn’t fetch any interest
Compound Interest
Amount (A) is in future and Present Value (P) is todays value

Amount Vs Present Value-
Loan taken Rs.5 lakhs, to be paid over 15 years at EMI.
1200pm Investment made, At retirement age you get Rs.35 lakhs.
Existing cost of Machine Rs.3 lakhs,purchased on instalment of 20k pm.
Scrap value of Machine after 15 years life is Rs.1 lakhs.
Raja wishes his wife Rani to have Rs.40 lakhs at his death.

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