Principal amount is Rs. 8000 which is invested at rate of interest 10% per annum compounded half-yearly. What will be the compound interest at end of 6 months?
- AOption (a)
Rs. 100
- BOption (b)
Rs. 200
- COption (c)
Rs. 300
- DOption (d)
Rs. 400
- EOption (e)
Rs. 500
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Correct answer
Rs. 400
Why this answer is correct
Shortcut Trick
For half-yearly compounding, the half-yearly rate = 10% Γ· 2 = 5%.
The time period is 6 months, which is exactly one half-year cycle.
Compound Interest for 1 cycle = Principal Γ Rate = 8000 Γ 5% = 400.
β΄ The correct answer is Rs. 400.
Alternate Method
Given:
Principal (P) = Rs. 8000
Annual Rate (R) = 10% per annum
Time (T) = 6 months = 1/2 year
Compounding = Half-yearly
Formula:
When interest is compounded half-yearly, New Rate (r) = R/2 and New Time (n) = 2 Γ T.
Calculations:
β Adjusted Rate (r) = 10% Γ· 2 = 5%
β Number of conversion periods (n) = 2 Γ (1/2) = 1 period
β Amount (A) = P(1 + r/100)n
β A = 8000(1 + 5/100)1
β A = 8000 Γ (1.05) = 8400
β Compound Interest (CI) = Amount β Principal
β CI = 8400 β 8000 = 400
β΄ The correct answer is Rs. 400.
Additional Information
Half-Yearly Compounding Rule
Divide the annual interest rate by 2 and multiply the number of years by 2 to get the total number of conversion periods.
Quarterly Compounding Rule
Divide the annual rate by 4 and multiply the number of years by 4. Formula: A = P(1 + R/400)4T.
CI vs SI for One Period
For the very first compounding period, the Simple Interest and Compound Interest are always equal.