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INTEREST AND DiscouNr

When a person borr~ws money for a bank or a money lender, he has to pay a
rtain sum of money as mterest to the money borrowed. The lender is called the
~~reditor' and the borrower is called the 'Debtor'. The amount borrowed by the debtor is
lled the Principal. The sum of money borrowed and interest is called the amount. Unit of
;i~e is usually one year and rate of interest is the interest for Rs.JOO per unit of time.

6.1 DEFINITIONS

Principal: The sum borrowed by a person is called its principal. It is

denoted by P.
Period: .
The time .- h money is . lent is called period. It is
span for wh1c
denoted by n.
Interest: . wer to the lender for the use of
The amount paid by a bor~o . d f t'me is called Interest.
c ta1n peno O 1
money borrowed ior a cer Th' ·s the interest to be
Of Interest· IS I · ·
It is denoted by /. Rate · (. · e per year). This is
paid on the amount of Rs. 100 per annum 1. ·
denoted by r.
Total Amount: d . terest is calle d as the total
The sum of the principal an In d by A Thus, A == P + 1·
amount (maturity value) an d IS
· denote ·

i.e. Interest paid / = A - P.

SitnpI · b
e interest: Let the period e n
Let p be the Principal borrowed. Let r be the rate Percent per year.
years and A be the amount. Then Simple Interest I= Pnr = Pni, where i =_!_
100 100
Note:
i) A = P + I = P + Pni
1001
ii) n=-
Pr

1001
iii) r=--
Pn

iv) p = 1001
. nr

Example: 1.
Find the simple interest on Rs; 10,000 at 10% for 2 -years. Also find the amount

Solution:
Given P = Rs. 10,000, n = 2 years, r = 10

1= Pnr = 10,000x 2x 10 = 2 000

100 100 '
Amount due after 2 years= 10,000 + 2,000 = Rs. 12,000

Example 2:
IfMr. Gohul borrows Rs. 500 for 2 years at 10% rate of interest, find (i) Simple
interest and (ii) total amount.

Solution:
Given P = Rs. 500, n = 2 and r = l 0

i) 1= Pnr = 500x 2:x 10 = Rs. -100

100 100
ii) A = P + I= 500 + 100 = Rs. 600

Example: 3 .n
fi wnic
Rs: 6000 amount to Rs . 8940 at 14% interest. Find the number of years or
the amount was lent.
Solution:
Given P = 6000, A= 8940, r = 14
 Interest, I= A - P = 8940 - 6000 = 2940
1001 l00x 2940 .
By formula, n =--==----=3.5 years
Pr 6000x 14

n = 3.5 year

Example 4:
Find the period for Rs. 2500 to yield Rs. 900 in Simple interest at 12%.
Solution:
Given P = Rs. 2500, I= 900, r = 12%
1001 l00x 900
By formula, n ==--==---=3 years
Pr 2500x12

Thus, The period is 3 years.

Example: 5

Find the period for Rs. 1000 to yield Rs. 50 in simple interestat I 0%.
Solution:

Given P = Rs. 1000, I= 50, r = 10%

1001 l00x 50
By formula, n ==--==---= 0.5 years
Pr l000x 10

Thus, the period is 0.5 years i.e . 6 months.

Example: 6

If a term deposit of Rs.4000 earns an interest of 2500 in 50 months, Find the rate of
interest.
Solution:

Given that P = 4000 I= 2500 n = 50

' ' 12

By formula, r = 1OO 1
Pn

_ lO0x 2500 = IS%

4000x 50
12
Rate of interest = 15%
 Example 7:
If Mr. ~niyan borrows Rs. 1000 for 5 years and pays an interest of Rs. 300, find the
rate of mterest.
Solution:
Given P = 1000, n = 5 and I= Rs. 300
1001
By formula, r = - -
Pn

lO0x 300
= - - - 6%
lO00x 5
Thus, the rate of interest is 6%.
Example: 8
A Certain sum amounts to Rs. 4000 at the end of 5 year at 12% p.a interest. Find
the sum.
Solution:
Given that A= 4000, n = 5, r = 12
We know that,

A=P+ Pnr
100

(ie) A=P(l+~J
100

A 4000
P=--- =
1+(~J 1+(~)
100 100

= Rs. 2500 :. P = Rs. 2500

Example: 9
'0
· 7 years. f tn
A sum of money amount to Rs.20,800 in 5 years and Rs. 22,720 in
the Principal and rate of simple interest.
Solution:

Given: Principal + interest for 7 years = Rs. 22,720

Principal + interest for 5 years = Rs. 20,800

Interest for 2 years = Rs.1920
 . ·-
Jnterest for I yeai - Rs.960
~ ·

Interest for 5 years = Rs.4800

Principa l = 20800 - 4800 = Rs . 16 ,000
p = Rs. 16000, n = l, I = Rs.960
r := .!..QQ_! = 100 X 960 = 6 %
Pn 16000 x 2

Rate of interest = 6%

Exam ple: 10
Mr. Dayaal borrowed Rs . 500 from a money lender and agreed to pay in four
installments of Rs . 150 each at the end of 3, 6, 9, 12 month . Find the rate of Simp le
interest per annum charged by the money lender.

Solution:
Let r be the interest rate .
Amount due at the end of 3 months= 500
Amount due at the end of 6 months = 350
Amount due at the end of 9 months = 200
Amount due at the end of 12 months = 50
Amount paid = 4 x 150 = Rs 600
Interest amount = Rs . 100
1
500 x _!_x _ r_ + 350x _!_x _r_ + 200x _!_x + 50x 4 x IOrO == IOO
4 100 4 100 4 100

(i.e) r [500 + 350 + 200 + 50] = 100

4 xl00

(i.e) 1I
r x- = 100
4

400 4
r= - = 36-%
Il lI
Ex
. ample 11
5 nd
~;-_Govi nd lents Rs. 5000 to Mr. Prakash and Rs. 4000 to Mr._ Rahul for Y.ear_s a
i c1vect tota l Sim ple interest of Rs. 4950. Find (i) the rate of interest and (u) simple
· of each .
%:rest
 Solution:
Let the rate of interest be r.
5000x 5x r _ _ (I)
S.I. for Prakash = - - - - = 250 r
100

S.I. for Rahul = 4 000 x 5 x r = 200 r _ _ (2)

100
From (1) and (2),
Total Interest = 250 r + 200 r = 450 r
But total interest received by Mr. Govind = ~s. 4950
450 r = 4950

r = 4950 = 11
450

:. The rate of interest= 11 %

S.I. for Prakash= 250 x 11 = Rs. 2750
S.I. for Rahul = 200 x 11 = Rs. 2200
Example 12:
The S.I. on a sum of money is one-fourth of the principal. If the period is same as that
of the rate of interest then find the rate of interest.
Solution:

Given I = R. and n = r
4

Pnr
We know that I= - -
100

Px rx r 100 2

100 4

r
2
= 25 r =5
The rate of interest= 5%
Exercise:
d
1) Find the SI and amount for the following data giving principal, rate of intereSl aJ1
number of years:
\' ,,av••':'...:
" -::.---
=- -
f1•l' ' 'st(~ , 6%, 4 years. (ii) 4500, 8%, 5 years (iii) 7650, 5.5%, 3 years. (i v) 6000, ?.S%,
1800
v) 25000, 8%, 5 years (vi) 20000, 9.5%, 10 years ·
6 years ( ·
Find the s.I. and the total amount for a principal of Rs. 6000 for 3 years at 6 % rate of
2)
interest.
Find the s.I. and the total amount for a principal of Rs. 3300 for 6 years at 3½ % rate
3)
of interest.
) Find the s.I. and the total amount for a principal of Rs. I 0550 for 2 years at IO¼ %
4
rate of interest.
S) Find the rate of interest if a person invests Rs. 1000 for 3 years and receives a S.I. of

Rs. 150.
) Find the rate of interest if a person invests Rs. 1200 for 2 years and receives a S.I. of
6
Rs. 168.
7) A person invests Rs. 4050 in a bank which pays 7% S.I. What is the balance of amount
of his savings after (i) six months, (ii) one year?
8) A person invests Rs. 3000 in a bank which offers 9% S.I. After how many years will
his balance of amount will be Rs. 313 5?
9) Find the principal for which the SI for 4 years at 8% is 585 less than the SI for 3 ½

years at 11 %.
IO)If the rate of S.I. on a certain principal is same as that of the period of investment
yields same interest as that of the principal, find the rate of interest.

ll)Find the prmc1pal

· · · 1
and rate of interest if a certain principal amounts to Rs. 2250 m
year and to Rs · 3 750 m
. 3 years.
12) .At what rat e on mterest
· . certain sum of money amount to three times
will . • •
the pnnc1pal
111 20 years?

13)p·
) 111d the penod
· at which Rs.350 amounts to Rs.420 at 5% interest per annum.
14
sumpof
Aear
Y · mone Yat simple
. .
interest . 2
amounts to Rs. 5184 in 1 year and to Rs. 5832 1n
s. tnd th
e sum and rate of interest.
6 -2 COMPOUND INTEREST

The interest which is calculated on the amount in the previous year is called compound
interest.

When a person got a loan of Rs. 1000 for 3 year at 10% simple interest at the end of 3 year, he
st
has to pay the principal with interest. If the interest at end of 1 year is added to the principal,
then the principal for the second year becomes Rs. 1100. The interest for this amount for the
2 nd year is Rs 110. Now the principal amount for third year is Rs.1210. The interest calculated
in this way is called Compound Interest.

i.e. Money is said to be lent at compound interest, if the interest rate is not paid as soon as it
falls due, but is added to the principal after a fixed period so that the amount at the period
becomes the Principal for the next period.

Formulae: If A is the amount and C.I is the compound interest then

1. A=P(l+-r}
100

2. C.1-A-P- P[(1+ 1~}-1]

A
3. P=
(1+-r}
100

4. r = 100[( f-1]
logA-logP
5. n=
log(! +-r)
100

6. When interest is compounded half yearly then A = p( I+ 2 x 00 r

7. When interest is compounded quarterly then A = p ( I + 4 X 00 r
1/-.,1pfe: 1
csa,, .
·nd
t the
· Compound interest on Rs. 20.000 for -" vear
., ::,·· u"t --, 0 c10 per annum .
f

soturion:
Given p = 20000, N = 5, r = 20

j
7

P[(\ I+ _ r_/
0

Compound interest CI= _ 1

l 00 )

= 2ooool-(1 20 J: _1lj
100

= 20000 [(1. 2)5 - I]

= Rs . 29,766.40

Example 2:
Find the compound Amount and compound interest of Rs. 1000 invested fo r 10 years
at 8% if the interest is compounded annuall y.

Solution:
Given P = 1000, r = 8, n = 10. Since the interest is compounded annuall y, \Ve have

A= P( l + - r
100
J"
0

= 1000 ( 1+ - 8
100
J'
= 1000 x 2. 1589 = Rs.2158 .9
CI = A -P = Rs.2158 .9- Rs.1000 = Rs . 1158.9
Exarnpte 3:
t
Fioct the principal which will amount to Rs . 11 ,236 in 2 years at 6% compoull<l intereS
S compounded annually.
olution:

Given A -- R s. 11236, n = 2, r = 6 and P =?

We know that A = P(l+-r100- )"

 l1 236 = P( l + ~ J ~ = P x 1.1 236
100

p = 1123 6 = l 0 000
11236 '

The required Principal is R s. 10,000.

Example 4:
If the. interest compounded half yearly on a certain
· principal
·· at the en d of on e year a:
8% 1s Rs . 3264, find the principal.

Solution:
Given CI= R s. 3264, n = 1, and r = 8
2

CI= A - P = p(l + r
2 x 100
J " - p

~p(l+2~0J- P
(i.e) 3264 = P[(l.04 2 ) - 1 ] = 0.0816 P

3264
:. P = = 40 000
0.0826 '
Thus, the principal is Rs. 40,000.

Exa mple: 5
Calculate the Compound interest on Rs . 2500 for 4 year at 8% per annum .
Also calculate the compound interest when interest is compounded (i) half yearly (ii)
Quarterly
Solution:
Given P = 2500, n = 4, r = 8

2500[( I+ I ~O) J- I

= Rs. 901.22
 V •f~

Jialf yearly
p = 2500, n =4 ' r = 8

c.1= 2soo[(1+ 2x~ooJT' -1

== Rs. 921.42

: Quarterly
1
p = 2500, n = 4, r =8

J]
4 4
8
er=
·
2500[(1+
4x 100
x -1

== Rs. 931.96
1 Example: 6
Find the period in which as amount gets DOUBLED at 12% per annum compound
interest.
Solution:
GivenA=2P,r=12

By substituting in the formula, A= P(l + 1~OJ"

2P = P(l + _!3_J"
100

Dividing both sides by P,

(1.I2t = 2
Take log on both sides,
n log (1.12) = log 2

:. n =n = log2 = 0.3010 = 6.12 years.

log(l,12) 0.0492
Exarnple: 7
R
A man depos its Rs . 12,000 in a company and gets s.
27 S66 at the end of
'
3: years.
. . h ny pays per month.
Find the rate of compound interest which t e compa
 Solution:

Given P = 12000, A= 27,566

n = 3..!..x 12 =42 months

2

r= 1oo[(: 1] f-
l
:. ...:.. = 10or(27566Ji -1
12 12000
lJ
r
-= 12
12

:. r = 24% p. a paid per month

Example: 8
A person borrows Rs 2500 at 10% simple interest for 2 years. He immediately lends
this money amount at compound interest at the same rate and for the same time. What
is his gain at the end of 2 years?
Solution:
P = 2500 n = 2 year r = 10%

SI= Pnr =2500x2x_!_Q_ =Rs. 500

100 100

Compound Interest for 2 years =P[(1+ 1~OJ" - 1]

=2500[(1 + l~O)J-1
= 2500 [1.21 - 1]
= 2500 :x 0.21 = 525
Gain = 525 - 500 = Rs. 25
Example: 9 t
On what sum of money WI
·11 th e d"f:c.
1 1erence between the simple interes
t and the

compound interest for 2 years at 5% per annum be equal to Rs.SO?

 6.JJ
oJution:
5
. le interest on the Principal for 2 years at 5% per annu =
S1tnP 5
m Px 2x- === 0 IP

lo;J_
100 .

Compound interest on P for 2 years at 5% per annum = p [ ( 1+ ]

1

=P [(1.05) 2 - l]
Given Cl- S.I = 50
· )
(1.e. p [(1.05)2 - 1] - 0.1 P = 50
p [0.1025-0.1] = 50
P [0.0025] = 50
50
P= = R ·s 20 000
0.0025 '
Example: 10

A loan is repaid in 4 annual installments of Rs. 200 each. If the rate of interest is I 0%
p.a. find1the amount of the loan. .
Solution:

p= 200 + 200 + 200 + 200 4

' (1+J_Q_)' (1+1)2 (1+1)3 (1+1)
100

200 200 200 200

:::: -+--+-~+----:-
1.1 (1.1)2 (1.1)3 (1.1)4

1- 1
::::
-200
1.1
(1.1)4
1--
1
1.1

===~ [l - 0.6830]
1.1

=== 2000 (.3170) = Rs 634

-lantpJe• 11 . t for 3 years at
• d the simple mteres
The difference between the compound interest Find
an
the sum.
50/ f
/Op.a on a certain sumo mo ney w as Rs. 610 ·
;olution:
Here n=3 r =5 c1-s1==6I0
'
But, CI- SI =r[(1 + 1~0J- 1]-:;;
5
(i.e.) 610= r[(i+¾oJ-1]- P~i;
610 = P [0.157625] - 0.15P = 0.007625P

p == 610 == Rs. 80,000

0.007625

Exercise :
1) Compute the compound amount and interest on a principal of Rs. 21,000 at 9% p.a
after 5 years.
2) Compute the compound amount and interest on a principal of Rs. 6000 at 11%
p.a.after 8 years.
3) Compute the compound amount and compound interest of Rs. 1200 if invested at
9%for 2 years and the interest compounded i) annually, (ii) semi annually, (iii)
quarterly and (iv) monthly.
4) Mr. Dayaal borrowed a sum of Rs. 6500 from his friend at 9% interest compounded
quarterly. Find the interest he has to pay at the end of 4 years?
5) What sum of money will amount to Rs. 11236 in 2 years at 6% p.a. compound
interest?
6) Find the principal which will amount to Rs. 13468.55 in 5 years at 6% intereSI
compounded quarterly.
7) Find the principal which will amount to Rs. 30626.075 in 3 years at 7% intereS!
compounded yearly.
8) Find after how many years Rs. 10,000 amount to Rs. 12,155 at 10% rate of interest
compounded half-yearly.
9) Find the rate of interest at which a principal of Rs. l 0000 amounts to Rs. 11236 a~er
2years.
10) On a certain principal
. .fior 3 years, the compound interest compounded annua llY is R0Sf·
.1125 .215 while the simple interest is Rs. I 050 find the principal and the rate
mterest. '
 v1scouNT
6.3
. a 1'-'estival season there are advertisement banners displayed in front o f eac h shops
urtng 1

Dffertng
. discount on the purchases made by the customer . · Such adv er t·1sements are
published
0 in the newspapers also. Each shop owner proclaims to sell his goods at 20%,
% discount etc.
1501,o, 39
Discount means r~duct~on ~n price .or less than marked price. Marked price ; printed price 1
catalogue price / hst pnce 1s the pnce quoted on the article for sale.
Trade Discount is allowed on the list price (L.P)
List Price - Trade Discount = Invoice Price
Invoice Price - Cash Discount = Net selling price
Net selling price - Profit= Cost

Example 8
Amal buys a kurta for Rs. 400 in a Big Bazaar. If a discount of 18% is allowed,
find the discount.
Solution:
Marked price = List price (L.P) = 'Rs. 400
Rate of Discount= 18% on L.P.
Discount= 18% on L.P.
Discount=
.
18% on 400 =
1 00
x -40.0 =Rs. 72

Example 9
6
Kavi purchased a table whose marked price is Rs. 7,000. The ·dealer allowed %
th
discount on it. Find (i) discount on Rs. 7,000 (ii) amount paid by Kavi for e table.

Solution:

(i) Discount = 6% on L.P.

6
= 6% on Rs. 7000 = 100
x 7000

= Rs. 420
(ii) Amount paid by Kavi for the table (or) S.P.
420 = Rs 6 5 80
= L .P. - Discount= 7 ,0 00 - · '
Example 10
A furniture maker sells a wooden table listed Rs. 2,500 for Rs. 2,200. Find the rate I
of discount.
Solution:
Listed price = Rs. 2,500
S.P = Rs. 2,200
:. Discount= L.P - S.P = 2500 - 2200
= Rs. 300
Discount x 100
Rate of discount -
L.P
300x lOO X 12%
= 2500