Compound Interest Shortcut Tricks for 1, 2 & 3 years in pdf
How to solve Compound Interest Problems: If you want to know how to solve Compound Interest Problems quickly (without a calculator), then you are at right place. You will learn Compound Interest shortcut tricks for 2 years and 3 years.
What actually is Compound Interest (CI)?
Compound Interest is Interest on Interest. The Interest that is accumulated for the first year is added to the Principal and the next Interest is calculated on the actual Principal plus the Interest occurred in the previous year.
Suppose an amount of $1000 is given at Compound Interest for 2 years at 5% per annum, then the Interest Compounded yearly will be:
For the 1st year;
CI =5% of $ 1000
= $50
Then, total sum will amount to $1050
For the 2nd year;
CI = 5% of 1050
= $52.5
Therefore, the total Compound Interest for 2 years will be= $ 50 +$ 52.50
= $102.50
And, this is what we call the Compound Interest and how it is calculated traditionally.
But, many a time this method becomes hazy to follow it because the values given aren’t as simple as mentioned above. For those who are preparing for Competitive Examinations its a must to calculate as fast as possible. For making your basic maths calculation faster you can read our lessons on BODMAS and Tricks to learn Divisibility of numbers.
To find Compound Interest, the rate of Interest applicable can be calculated with the help of the following table. These values directly convert the given rate of Interest to the period of the time given in the problem. Further explanation is given with the help of examples.
Compound Interest Shortcut Tricks Table
1^{st} year |
2^{nd} year |
3^{rd} year |
2% |
4.04% |
6.12% |
4% |
8.16% |
12.48% |
5% |
10.25% |
15.76% |
6% |
12.36% |
19.1% |
7% |
14.49% |
22.5% |
8% |
16.64% |
25.97% or 26% |
9% |
18.81% |
29.31% |
10% |
21% |
33.1% |
11% |
23.21% |
36.76% |
12% |
25.44% |
40.49% or 40.5% |
15% |
32.25% |
52.08% |
20% |
44% |
72.8% |
NOTE:
Some of the % values mentioned above give approximate values not exact values.
One can determine the answers correctly by looking up to the options given with corresponding question.
Example:
Ques. Find the CI on $ 1000 for 2 years at 5% p.a. compounded annually.
Sol: CI rate% for 2 years = 10.25%
Then find 10.25% of the principal
(10.25*1000)/100 = $102.5
$ 102.5 is your required compound interest and as far as the amount is concerned here is pretty short method.
Important Point:
- Principal (P) is always 100% of itself.When Compound Interest is added to it then it results to the required Amount.
Example:
Ques. Find amount on ₹ 1000 for 3 years at 10% p.a. compounded annually.
Sol. P = 100%
A = P + CI
= 100 % + 33.1% (CI % for 3 years at 10% p.a. )
A = 133.1% of Principal
Therefore A = (133.1 x 1000)/100 = $ 1331
How to learn Compound Interest (CI) Tricks for 2 years?
Learning the above table seems a gruesome task at first, but what if I tell you there is a trick to learn that too. To learn and remember the CI for 2 years is important from the exam point of view. In most competitive examinations questions are asked only for 2 years and 3 years (in rare cases).
So, here I am going to tell you that how can you remember the 2-year Compound Interest Trick.
Let’s take an example- If you have to calculate the CI on $1000 for 2 years compounded annually at 5% per annum. Then you need to focus on the rate of interest (5% in this case).
- For 1st year, the Interest will be 5% as given.
- For 2nd year, you have to square the rate of Interest ( here, it’ll be 25) and place it after a decimal in the given rate of Interest. (Here, it will be like 5.25)
Note that you have to use only two decimal places, shift the carry towards the left side of decimal. For example – if the rate of Interest is 12%. Then, for the 2nd year, we will add its square i.e. 144 to 12, but since we have to use only two decimal places, the numeral at the Hundredth Place in the square term will be shifted and added to the number on the left side of the decimal. Therefore, the resultant ROI will become 13.44 in this case.
- The third step would be to add the percentage of Rate of Interest obtained in both cases. (In this case- 5% + 5.25% = 10.25% for 2 years.
Now, since we have got the effective rate of Interest for 2 years, next we will directly calculate the CI using the resultant rate of Interest.
In this case, it will be 10.25% of $1000 which equals to $102.5. Hence, we got our answer.
At first, this may seem a time-consuming task, but if you practice it regularly, it will save you much time. Doing calculations in mind will make you a master of this Trick to find Compound Interest for 2 years.
Up Next- How to remember Compound Interest Trick for 3 Years?