Shortcut Trick
For quarterly compounding, the Rate becomes 16% ÷ 4 = 4% and Time becomes 9 ÷ 3 = 3 periods.
Use the 3 : 3 : 1 ratio method for 3 periods at 4%:
Step 1: 4% of 2,50,000 = 10,000 | Step 2: 4% of 10,000 = 400 | Step 3: 4% of 400 = 16
Compound Interest = 3 × (10,000) + 3 × (400) + 1 × (16) = 30,000 + 1,200 + 16 = 31,216.
∴ The correct answer is Rs. 31,216.
Alternate Method
Given:
⇒ Principal (P) = Rs. 2,50,000
⇒ Annual Rate (R) = 16%
⇒ Time (T) = 9 months
Formula Used:
⇒ Amount (A) = P(1 + r/100)n, where r is the quarterly rate and n is the number of quarters.
⇒ Compound Interest (CI) = Amount − Principal
Calculations:
⇒ Quarterly Rate (r) = 16% ÷ 4 = 4%
⇒ Number of quarters (n) = 9 months ÷ 3 months = 3 quarters
⇒ A = 2,50,000 × (1 + 4/100)3
⇒ A = 2,50,000 × (1.04)3
⇒ A = 2,50,000 × 1.124864
⇒ A = 281,216
⇒ CI = 281,216 − 2,50,000
⇒ CI = 31,216
∴ The correct answer is Rs. 31,216.
Additional Information
Quarterly Compounding Rule
When interest is compounded quarterly, divide the annual rate by 4 and multiply the time in years by 4. Formula: A = P(1 + R/400)4n.
Half-Yearly Compounding Rule
When interest is compounded half-yearly, divide the annual rate by 2 and multiply the time in years by 2. Formula: A = P(1 + R/200)2n.
Effective Interest Rate
It represents the actual interest earned in a year due to compounding. Effective Rate = (1 + r/n)n − 1, where r is the nominal rate and n is the frequency.
CI − SI Difference for 3 Years
The difference between compound interest and simple interest for 3 years is given by: D = P(r/100)2 × (3 + r/100).