Practice Problems on Interest Rate Formula

Q1. What is the ratio of interest generated while a certain sum of money is subjected to simple interest at the same rate for 3 and 5 years respectively.

Q2. What is the difference of interest amount generated when a sum of Rs. 1000 is subjected to 10% compound interest rate, compounded monthly and annually?

Q3. Calculate the compound interest on a sum of Rs. 5000 at a rate of 7% for 3 years if it is compounded monthly, quarterly, half-yearly and annually.

Q4. What is the ratio of interest amount generated when a sum of Rs. 8000 is compounded at 7% rate and 7% simple interest rate separately for 5 years?

Q5. Compound interest on Rs. 5000 for 3 years at 6% per annum is double the simple interest on some amount of money for 3 years at 8% per annum. What is the sum placed on simple interest is?

Interest Rate Formula

Interest Rate Formula is a mathematical formula used to find the percent rate which is charged on Principle to yield the final amount. Interest Rate is a fundamental concept that comes into play whenever money changes hands. Whether someone is borrowing, lending, or investing money, interest rates play a crucial role. Interest is of two types namely simple interest and compound interest. Interest Rates can be charged daily, monthly, weekly, quarterly, half-yearly, and yearly.

This article will explain the basics of interest rates, the difference between simple and compound interest, and provide the Interest Rate formulas for both types.

Table of Content

  • What is Interest Rate?
  • What is Interest Rate Formula?
  • Simple Interest Rate
  • Compound Interest Rate
  • Simple Interest Rate vs Compound Interest Rate

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What is Interest Rate?

An interest rate is the cost of borrowing money or the return on investment for lending money....

What is Interest Rate Formula?

Interest rate formula is a mathematical equation which establishes a relation between the interest rate amount, principal amount, percent rate of interest and duration for which the amount is borrowed. Interest Rate Formula helps us to find out the amount of money that has to be returned to the lender after the specified time period. Let’s understand what is simple interest and compound interest and their respective interest rate formulas separately....

Simple Interest Rate

Simple Interest is the amount paid by the borrower to the lender based on a percentage of the borrowed money. The percentage of the principal amount that must be paid as interest is called the interest rate (denoted as “r”). The Simple interest amount remains the same for each year until the borrowed amount is fully repaid. The total amount to be paid when repaying the money is the sum of the principal amount and total simple interest summed up for the given period....

Compound Interest Rate

Compound interest rate is used when the interest is depended on the interest accumulated till then along with the borrowed amount. The amount of money to be paid as interest for the current year is calculated on the sum of principal amount and interest charged till the previous year. As the principal amount at which the interest rate is applied keeps on increasing, it is said to be compounded every year....

Simple Interest Rate vs Compound Interest Rate

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Solved Examples on Interest Rate Formula

Example 1: Alice has lend ₹10,000 to Bob for 3 years. Calculate the amount that Bob has to pay back at the end of 3 years, if...

Practice Problems on Interest Rate Formula

Q1. What is the ratio of interest generated while a certain sum of money is subjected to simple interest at the same rate for 3 and 5 years respectively....

Interest Rate Formula – FAQs

1. What is Interest Rate?...