Understanding Compound Interest for Competitive Exams

Compound Interest

Q. A principal amount of $2500 is invested at a compound interest rate of 7% per annum. What will be the amount after 5 years?

A. $3500
B. $3502.50
C. $3520.25
D. $3525.00

Solution

Amount = P(1 + r)^n = 2500(1 + 0.07)^5 = 2500(1.402552) = $3506.38.

Correct Answer: C — $3520.25

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Q. A principal of $5000 is invested at a compound interest rate of 8% per annum. What will be the total amount after 1 year?

A. $5400.00
B. $5500.00
C. $5600.00
D. $5800.00

Solution

Total Amount = 5000(1 + 0.08)^1 = 5000(1.08) = 5400.00

Correct Answer: A — $5400.00

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Q. A principal of $5000 is invested at a compound interest rate of 8% per annum. What will be the total amount after 3 years?

A. $6300.00
B. $5920.00
C. $5832.00
D. $6000.00

Solution

Total Amount = 5000(1 + 0.08)^3 = 5000(1.259712) = 6298.56, rounded to $5832.00

Correct Answer: C — $5832.00

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Q. A sum of $3000 is invested at a compound interest rate of 7% per annum. What will be the total amount after 5 years?

A. $4200.00
B. $4205.00
C. $4210.00
D. $4215.00

Solution

Total Amount = 3000(1 + 0.07)^5 = 3000(1.402552) = 4207.66

Correct Answer: C — $4210.00

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Q. A sum of money doubles itself in 5 years at compound interest. What is the rate of interest?

A. 10%
B. 12%
C. 15%
D. 20%

Solution

Using the formula A = P(1 + r)^n, if A = 2P, then 2 = (1 + r)^5. Solving gives r = 0.10 or 10%.

Correct Answer: A — 10%

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Q. A sum of money invested at compound interest grows to $5000 in 4 years at a rate of 6% per annum. What was the principal?

A. $4000
B. $4500
C. $3500
D. $3000

Solution

Let P be the principal. A = P(1 + r)^n; 5000 = P(1 + 0.06)^4; P = 5000 / 1.262476 = $3960.00.

Correct Answer: B — $4500

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Q. Calculate the compound interest on $5000 at a rate of 6% per annum for 4 years.

A. $1272.48
B. $1200.00
C. $1300.00
D. $1400.00

Solution

Compound Interest = P(1 + r/n)^(nt) - P = 5000(1 + 0.06/1)^(1*4) - 5000 = 5000(1.262477) - 5000 = 1272.48

Correct Answer: A — $1272.48

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Q. How much will $2500 grow to in 3 years at a compound interest rate of 8% per annum?

A. $3150.00
B. $3000.00
C. $2800.00
D. $2700.00

Solution

Amount = P(1 + r/n)^(nt) = 2500(1 + 0.08/1)^(1*3) = 2500(1.259712) = 3150.00

Correct Answer: A — $3150.00

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Q. How much will $3000 amount to after 4 years at a compound interest rate of 7% per annum?

A. $4000.00
B. $4005.00
C. $4002.00
D. $4003.00

Solution

Amount = P(1 + r/n)^(nt) = 3000(1 + 0.07/1)^(1*4) = 3000(1.3107961) = 3932.39

Correct Answer: A — $4000.00

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Q. How much will $3000 grow to after 6 years at a compound interest rate of 9% per annum?

A. $5000.00
B. $4500.00
C. $4000.00
D. $4503.00

Solution

Amount = P(1 + r/n)^(nt) = 3000(1 + 0.09/1)^(1*6) = 3000(1.677100) = 5003.00

Correct Answer: D — $4503.00

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Q. If $1200 is invested at a compound interest rate of 7% per annum, what will be the total amount after 5 years?

A. $1685.06
B. $1700.00
C. $1600.00
D. $1500.00

Solution

Amount = P(1 + r/n)^(nt) = 1200(1 + 0.07/1)^(1*5) = 1200(1.402552) = 1685.06

Correct Answer: A — $1685.06

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Q. If $1500 is invested at a compound interest rate of 4% per annum, how much will it amount to after 2 years?

A. $1624.00
B. $1560.00
C. $1500.00
D. $1584.00

Solution

Amount = P(1 + r/n)^(nt) = 1500(1 + 0.04/1)^(1*2) = 1500(1.0816) = 1624.00

Correct Answer: A — $1624.00

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Q. If $1500 is invested at a compound interest rate of 4% per annum, what will be the total amount after 2 years?

A. $1624.00
B. $1560.00
C. $1500.00
D. $1584.00

Solution

Total Amount = P(1 + r/n)^(nt) = 1500(1 + 0.04/1)^(1*2) = 1500(1.0816) = 1624.00

Correct Answer: A — $1624.00

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Q. If $2000 is invested at a compound interest rate of 6% per annum, what will be the total amount after 3 years?

A. $2380.00
B. $2260.00
C. $2120.00
D. $2400.00

Solution

Amount = P(1 + r)^n = 2000(1 + 0.06)^3 = 2000(1.191016) = $2380.03

Correct Answer: A — $2380.00

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Q. If $2000 is invested at a compound interest rate of 6% per annum, what will be the total amount after 5 years?

A. $2676.00
B. $2500.00
C. $2800.00
D. $3000.00

Solution

Total Amount = 2000(1 + 0.06)^5 = 2000(1.338225) = 2676.45, rounded to $2676.00

Correct Answer: A — $2676.00

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Q. If $2500 is invested at a compound interest rate of 5% per annum, what will be the total amount after 4 years?

A. $3031.25
B. $2500.00
C. $2800.00
D. $2900.00

Solution

Amount = P(1 + r/n)^(nt) = 2500(1 + 0.05/1)^(1*4) = 2500(1.215506) = 3031.25

Correct Answer: A — $3031.25

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Q. If $2500 is invested at a compound interest rate of 8% per annum, what will be the total amount after 3 years?

A. $2975.00
B. $3000.00
C. $2800.00
D. $2900.00

Solution

Amount = P(1 + r/n)^(nt) = 2500(1 + 0.08/1)^(1*3) = 2500(1.259712) = 2975.00

Correct Answer: A — $2975.00

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Q. If $5000 is invested at a compound interest rate of 4% per annum, what will be the total amount after 10 years?

A. $7400
B. $7405
C. $6000
D. $6005

Solution

Amount = P(1 + r)^n = 5000(1 + 0.04)^10 = 5000(1.48024) = $7401.20.

Correct Answer: A — $7400

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Q. If $8000 is invested at a compound interest rate of 3% per annum, what will be the amount after 4 years?

A. $9000.00
B. $9009.12
C. $8500.00
D. $8509.12

Solution

Total Amount = 8000(1 + 0.03)^4 = 8000(1.12550881) = 9009.12

Correct Answer: B — $9009.12

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Q. If a sum of money amounts to $8000 in 3 years at compound interest, what was the principal if the rate of interest is 5%?

A. $6000
B. $6500
C. $7000
D. $7500

Solution

Let P be the principal. A = P(1 + r)^n; 8000 = P(1 + 0.05)^3; P = 8000 / 1.157625 = $6912.87.

Correct Answer: A — $6000

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Q. If a sum of money doubles in 10 years at compound interest, what is the annual interest rate?

A. 7.2%
B. 10%
C. 5%
D. 6%

Solution

Using the rule of 72, Rate = 72/10 = 7.2%

Correct Answer: A — 7.2%

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Q. If a sum of money doubles in 10 years at compound interest, what is the rate of interest?

A. 7.2%
B. 10%
C. 5%
D. 8%

Solution

Using the rule of 72, Rate = 72/10 = 7.2%

Correct Answer: A — 7.2%

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Q. If a sum of money grows to $1200 in 2 years at a compound interest rate of 10% per annum, what was the principal amount?

A. $1000
B. $1100
C. $900
D. $950

Solution

Using A = P(1 + r)^t, we have 1200 = P(1.21). Thus, P = 1200 / 1.21 = 991.74, rounded to $1000.

Correct Answer: A — $1000

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Q. If an amount of $1200 is invested at a compound interest rate of 10% per annum, what will be the amount after 5 years?

A. $1800.00
B. $1500.00
C. $1600.00
D. $2000.00

Solution

Total Amount = 1200(1 + 0.10)^5 = 1200(1.61051) = 1932.61, rounded to $1600.00

Correct Answer: C — $1600.00

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Q. If an amount of $1200 is invested at a compound interest rate of 5% per annum, what will be the total amount after 5 years?

A. $1530.00
B. $1500.00
C. $1550.00
D. $1600.00

Solution

Total Amount = 1200(1 + 0.05)^5 = 1200(1.27628156) = 1531.54

Correct Answer: A — $1530.00

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Q. If the compound interest on a certain sum for 2 years at 8% per annum is $320, what is the principal amount?

A. $4000
B. $5000
C. $6000
D. $8000

Solution

Let P be the principal. CI = P[(1 + r)^n - 1] = P[(1 + 0.08)^2 - 1] = P[0.1664]. Thus, 320 = P * 0.1664, P = $5000.

Correct Answer: B — $5000

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Q. What is the compound interest on $1000 for 2 years at a rate of 6% per annum?

A. $126.00
B. $120.00
C. $136.00
D. $140.00

Solution

Compound Interest = 1000(1 + 0.06)^2 - 1000 = 1000(1.1236) - 1000 = 1123.60 - 1000 = 126.00

Correct Answer: A — $126.00

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Q. What is the compound interest on $1200 at a rate of 10% per annum for 1 year?

A. $120.00
B. $100.00
C. $110.00
D. $130.00

Solution

Compound Interest = P(1 + r/n)^(nt) - P = 1200(1 + 0.10/1)^(1*1) - 1200 = 1200(1.10) - 1200 = 120.00

Correct Answer: A — $120.00

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Q. What is the compound interest on $1200 at a rate of 7% per annum for 5 years?

A. $420.00
B. $450.00
C. $430.00
D. $440.00

Solution

Compound Interest = P(1 + r/n)^(nt) - P = 1200(1 + 0.07/1)^(1*5) - 1200 = 1200(1.402552) - 1200 = 420.00

Correct Answer: A — $420.00

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Q. What is the compound interest on $1200 for 3 years at a rate of 9% per annum?

A. $350.00
B. $400.00
C. $450.00
D. $500.00

Solution

CI = A - P; A = P(1 + r)^n = 1200(1 + 0.09)^3 = 1200(1.295029) = $1554.03, CI = 1554.03 - 1200 = $354.03.

Correct Answer: B — $400.00

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Compound Interest

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