Solved Questions of Compound Interest
1. Ronald has $1000 and he invested for 2 years at 10% p.a. compounded annually. Find the compound interest.
a) $100
b) $210
c) $320
d) $400
Answer: b) $210
Explanation: We have,
Principal: P = 1000
Rate: R = 10
Time: n = 2
Since the interest is compounded annually so we are calculating interest once a year.
Amount A = P (1 + R/100)n
= 1000 (1 + 10/100 )2
= 1000 (1.1)2
= 1000 x 1.21
= 1210
So, compound interest C.I. = A - P
= 1210 - 1000
= 210
2. What will be the compound interest on $8000 in two years when the rate of interest is 2% per annum?
a) $323.2
b) $332.3
c) $233.3
d) $232.4
Answer: a) $323.2
Explanation: Given,
Principal: P = 8000
Rate: R = 2%
Time = 2 years
by formula,
A = P (1 + R/100)n
= 8000 (1 + 2/100)2
= 8000 (102/100)2
= 8323.2
Compound Interest = A – P
= 8323.2 – 8000
= $323.2
3. What is the compound interest on $10000 for one year at the rate of 12% per annum, if the interest is compounded quarterly?
a) $1220
b) $1225
c) $1255
d) $1300
Answer: c) $1255
Explanation: Given,
Principal: P = $10000
Rate: R = 12% (12/4 = 3% per quarter year)
Time = 1 year (1 × 4 = 4 quarters)
by formula,
A = P (1 + R/100)n
= 10000 (1 + 3/100)4
= 10000 (103/100)4
= 11255
Compound Interest = A – P
= 11255 – 10000
= 1255 (approx)
4. Find the compound interest on $30000 at 7% interest compounded annually for two years.
a) $4747
b) $4437
c) $4347
d) $4743
Answer: c) $4347
Explanation: Given,
Principal: P = Rs 30000
Rate: R = 7%
Time = 2 year
by formula,
A = P (1 + R/100)n
= 30000 (1 + 7/100)2
= 30000 (107/100)2
= 34347
Compound Interest = A – P
= 34347 – 30000
= 4347
5. Find the amount on $8,000 at 10 % per annum for 1 1/2 years if the interest is compounded half-yearly.
a) $1261
b) $3462
c) $5673
d) $9261
Answer: d) $9261
Explanation: Here, the interest is compounded half-yearly. So,
Principal (P) = $ 8,000
Number of years (n) = 1 1/2 × 2 = 3/2 × 2 = 3
Rate of interest compounded half-yearly (r) = 10/2% = 5%
Now, A = P (1 + r/100)n
A = 8000 (1 + 5/100)3
A = 8000 (1 + 1/20)3
A = 8000 x (21/20)3
A = 8000 x 9261/8000
A = $ 9261
Practice Questions of Compound Interest
1. Barry invests $9000 in corporate bonds at 8% annual interest, compounded quarterly. At the end of the year, how much interest has his investment earned?
a) More than 700
b) More than 730
c) More than 750
d) Less than 700
Answer: b) More than 730
2. If the principal is $1,000, the interest rate is 5% and the time period is 5 years. Find the compound interest.
a) $276.28
b) $300.22
c) $403.2
d) $410.23
Answer: a) $276.28
3. A person deposited $1000 in a savings account with an interest rate of 5% per annum. How much will be the total amount after 3 years?
a) $1157.63
b) $1175.00
c) $1250.00
d) $1315.63
Answer: a) $1157.63
4. The compound interest on $20,480 at 6 1/4 % per annum for 2 years 73 days, is:
a) $3240.00
b) $2929.00
c) $2480.00
d) $1600.00
Answer: b) $2929.00
5. You want to have $50,000 in 10 years for a down payment on a house. If you can earn 7% interest compounded annually, how much do you need to invest today to reach your goal?
a) $25,231.63
b) $29,845.88
c) $32,764.63
d) $35,798.49
Answer: a) $25,231.63
6. A bank account earns an annual interest rate of 5% compounded annually. If $1,000 is deposited into the account, how much will be in the account after 10 years?
a) $1628.89
b) $2345.24
c) $3452.20
d) $7685.24
Answer: a) $1628.89
7. A savings account earns an annual interest rate of 6% compounded quarterly. If $5,000 is deposited into the account, how much will be in the account after 5 years?
a) $7,453.97
b) $7,543.97
c) $7,343.97
d) $6,734.27
Answer: d) $6,734.27
8. Jasmine deposits $520 into a savings account that has a 3.5% interest rate compounded monthly. What will be the balance of Jasmine’s savings account after two years?
a) $520.34
b) $537.70
c) $557.65
d) $565.10
Answer: c) $557.65
9. If $15,000 investment earns 6% interest compounded annually, how much will it be worth after 5 years?
a) $18387
b) $19987
c) $20073
d) $21987
Answer: c) $20073
10. A teacher wants to invest $30,000 into an account that compounds annually. The interest rate at this bank is 1.8%. How much money will be in the account after 6 years?
a) $33389.35
b) $47546.27
c) $43298.20
d) $23845.32
Answer: a) $33389.35
