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    Chapter-4: Interest and Time Value

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    Jaya Prakash
    This document provides examples and formulas for calculating simple and compound interest. Simple interest is calculated only on the principal amount for each time period. The total interest earned over all periods is the simple interest. Formulas are given to calculate simple interest, principal, time, rate of interest and amount. Compound interest is calculated by compounding the interest for one period to the principal to get the new principal for the next period. A formula is given to calculate the amount earned with compound interest over time at a given interest rate, where the interest is compounded annually. Worked examples are provided to demonstrate calculating simple interest, principal, time, rate of interest and amount as well as compound interest earned over time at

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    Chapter-4: Interest and Time Value

    Uploaded by

    Jaya Prakash
    95 views4 pages
    This document provides examples and formulas for calculating simple and compound interest. Simple interest is calculated only on the principal amount for each time period. The total interest earned over all periods is the simple interest. Formulas are given to calculate simple interest, principal, time, rate of interest and amount. Compound interest is calculated by compounding the interest for one period to the principal to get the new principal for the next period. A formula is given to calculate the amount earned with compound interest over time at a given interest rate, where the interest is compounded annually. Worked examples are provided to demonstrate calculating simple interest, principal, time, rate of interest and amount as well as compound interest earned over time at

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    INTEREST AND TIME VALUE FOR BBA/ BCOM

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    CHAPTER-4

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    This document provides examples and formulas for calculating simple and compound interest. Simple interest is calculated only on the principal amount for each time period. The total interest earned over all periods is the simple interest. Formulas are given to calculate simple interest, principal, time, rate of interest and amount. Compound interest is calculated by compounding the interest for one period to the principal to get the new principal for the next period. A formula is given to calculate the amount earned with compound interest over time at a given interest rate, where the interest is compounded annually. Worked examples are provided to demonstrate calculating simple interest, principal, time, rate of interest and amount as well as compound interest earned over time at

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    95 views4 pages

    Chapter-4: Interest and Time Value

    Uploaded by

    Jaya Prakash
    This document provides examples and formulas for calculating simple and compound interest. Simple interest is calculated only on the principal amount for each time period. The total interest earned over all periods is the simple interest. Formulas are given to calculate simple interest, principal, time, rate of interest and amount. Compound interest is calculated by compounding the interest for one period to the principal to get the new principal for the next period. A formula is given to calculate the amount earned with compound interest over time at a given interest rate, where the interest is compounded annually. Worked examples are provided to demonstrate calculating simple interest, principal, time, rate of interest and amount as well as compound interest earned over time at

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    [BASIC NUMERICAL METHODS] [THIRD SEMESTER] [BBA/BCom] Chapter-4

    INTEREST AND TIME VALUE


    Simple Interest
    The interest is calculated for every period only on the principal then the total
    interest gained on all the period is called simple interest. The principal plus
    interest gained is called amount.
    Ie, Amount= Principal Simple Interest(A=P+SI)
    If P is principal amount and R the rate of percentage per annum, N the number
    of years the SI, simple interest A the amount then.

    𝐏×𝐑×𝐍
    𝑺𝐈 =
    𝟏𝟎𝟎

    𝐒𝐈 × 𝟏𝟎𝟎 𝐒𝐈 × 𝟏𝟎𝟎
    𝑹= 𝑻=
    𝐏×𝐍 𝐑×𝐏

    𝐒𝐈 × 𝟏𝟎𝟎 𝐀 × 𝟏𝟎𝟎
    𝑷= 𝑷=
    𝐑×𝐍 𝟏𝟎𝟎 × 𝐑 × 𝐍

    EXAMPLE 4.1
    Find the SI on Rs 800 for 3 years @ 5% p.a also find the amount after 3 years.

    SOLUTION
    PNR
    SI = P=800; N=3; R=5%
    100
    800×3×5
    = = 120
    100

    As the interest is 120 the amount after three year=800+120=920.


    [BASIC NUMERICAL METHODS] [THIRD SEMESTER] [BBA/BCom]

    EXAMPLE 4.2
    Find the simple interest on Rs 4200 for 3 years at 4½% p.a

    SOLUTION
    1
    PNR 4200×3×42
    SI = P=4200; N=3; R=4½% = 100
    = 𝑅𝑠567.
    100

    EXAMPLE 4.2
    What principal will yield Rs 60 as simple interest at 6% per annum in 5 years.

    SOLUTION

    SI×100 100×60
    P= = = Rs 200
    R×N 5×6

    EXAMPLE 4.3
    At what interest rate will Rs 5000 yield Rs 300 in simple interest in 8 months

    SOLUTION
    PNR
    SI = P=5000; N=8months; SI=300
    100
    8
    300 = 5000 × ×𝑟 𝑖𝑒; 300 = 3333.3𝑟
    12
    300
    𝑟= = 0.09
    3333.33
    Hence, interest rate =0.09100=9%.
    [BASIC NUMERICAL METHODS] [THIRD SEMESTER] [BBA/BCom]

    EXAMPLE 4.4
    Find the number of years of a sum of Rs 15000 will become Rs 20,000 if the
    rate of interest is 5%.

    SOLUTION
    SI= whole amount-principal
    Ie; 20,000-15,000=5000

    PNR
    SI = P=15000; N=? R=5% SI=5000
    100
    5
    So, 5000 = 15000 × N × 100

    5000=750N
    5000
    So; N = = 6.67
    750

    PRACTICE YOUR SELF


    1. If Meena gives an interest of Rs 45 for one year at 9% rate p.a. what is
    the sum she has borrowed?
    2. How long will it take for Rs 2000 to amount 2360 at 6% p.a in simple
    interest.
    3. If the amount for 2 years at 6% is 4000 what is the Principal?

    COMPOUND INTEREST
    In the case of Compound interest, the interest for one period is compounded to
    the principal to get the principal for the next period. The time for compounding
    the interest may be annual, semi annual or any other regular time period.
    If R is the rate of percentage per annum, the amount A , P is the principal and
    n is the number of years, amount at the end of n years will be

    𝑅 𝑛
    𝐴 = 𝑃 ൬1 + ൰ CI=A-P
    100
    [BASIC NUMERICAL METHODS] [THIRD SEMESTER] [BBA/BCom]

    EXAMPLE 4.5
    Find the compound interest on Rs 24000 for 2 years 5%p.a

    SOLUTION
    P=24000; r=5% and n=2
    𝑟 𝑛 5 2
    𝐴 = 𝑃 (1 + 100) = 24000 (1 + 100)

    24000× 1.052 1.052 = 1.05 × 1.05 = 1.1025


    =240001.1025
    =26460
    CI=26460-24000
    =2460

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