A good shortcuts on Compound Interest.

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We all know the traditional formula to compute interest...

CI = P*(1+R/100)^N - P

The calculation get very tedious when N>2 (more than 2 years). The method suggested below is elegant way to get CI/Amount after 'N' years. You need to recall the good ol' Pascal's Triange in following way:

Code:

Number of Years (N)

-------------------

1 1

2 1 2 1

3 1 3 3 1

4 1 4 6 4 1

. 1 .... .... ... ... 1

Example: P = 1000, R=10 %, and N=3 years. What is CI & Amount?

Step 1: 10% of 1000 = 100, Again 10% of 100 = 10 and 10% of 10 = 1

We did this three times b'cos N=3.

Step 2:

Now Amount after 3 years = 1 * 1000 + 3 * 100 + 3 * 10 + 1 * 1 = Rs.1331/-

The coefficents - 1,3,3,1 are lifted from the pascal's triangle above.

Step 3:

CI after 3 years = 3*100 + 3*10 + 3*1 = Rs.331/- (leaving out first term in step

2)

If N =2, we would have had, Amt = 1 * 1000 + 2 * 100 + 1 * 10 = Rs. 1210/-

CI = 2 * 100 + 1* 10 = Rs. 210/-

This method is extendable for any 'N' and it avoids calculations involving higher

powers on 'N' altogether!

A variant to this short cut can be applied to find depreciating value of some

property. (Example, A property worth 100,000 depreciates by 10% every year, find

its value after 'N' years).

## Wednesday, January 6, 2010

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This method is really simple. Thank you. Can you post such methods for calculating CI if the N is quarterly, half yearly and in any number of months. Your help would be appreciated.

ReplyDeleteConsider half yearly

DeleteIn this case the rate will be half of annual rate calculated halfyearly

i.e Rate = 5% and N=6 for the above case

Similarly do the necessary for quaterly

if you want half yearly and quarterly then for

ReplyDeletehalf yearly rate will half and time will double

similarly for quarterly rate will one forth and time will four time

can we have shortcuts for solving percentage aptitude questions?

ReplyDeletethe above one was of great help!!

brother...........I want be a member of ur blog.....can I ??????????

ReplyDeleteThank u brother...its really superb..........

ReplyDeleteamazing....thanku...so much!

ReplyDeletevery easy and short. thnx

ReplyDeleteWhere do we consider Rate 'R' using Pascal's triangle method ?? What if the rate is 5% where should we submit ??

ReplyDeletehow to find rate of interes if CI,N and p given in shortcut...

ReplyDeleteHow can we use this method if rate of interest is different for each year?

ReplyDelete