Compound Interest MCQ & Objective Questions
Understanding compound interest is crucial for students preparing for exams, as it is a fundamental concept in mathematics and finance. Practicing MCQs and objective questions on compound interest not only enhances your knowledge but also boosts your confidence in tackling exam questions. Engaging with practice questions helps you identify important questions and solidify your understanding, ensuring you are well-prepared for your upcoming assessments.
What You Will Practise Here
Definition and significance of compound interest
Formula for calculating compound interest
Difference between simple interest and compound interest
Applications of compound interest in real-life scenarios
Calculation of compound interest for different compounding periods
Understanding the impact of interest rates on compound interest
Solving numerical problems related to compound interest
Exam Relevance
Compound interest is a vital topic in various educational boards, including CBSE and State Boards, as well as competitive exams like NEET and JEE. Students can expect questions that require them to apply the compound interest formula, compare it with simple interest, and solve real-world problems. Common question patterns include numerical calculations, theoretical explanations, and application-based scenarios, making it essential to master this topic for effective exam preparation.
Common Mistakes Students Make
Confusing the formulas for simple interest and compound interest
Misunderstanding the concept of compounding periods
Failing to account for the effect of varying interest rates
Overlooking the importance of precise calculations in numerical problems
FAQs
Question: What is the main difference between simple interest and compound interest?Answer: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.
Question: How can I calculate compound interest for different compounding periods?Answer: You can use the formula A = P(1 + r/n)^(nt), where A is the amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the time in years.
Now is the time to enhance your understanding of compound interest! Dive into our practice MCQs and test your knowledge to ensure you are fully prepared for your exams. Remember, consistent practice leads to success!
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
Show solution
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 3 years?
A.
$6300.00
B.
$5920.00
C.
$5832.00
D.
$6000.00
Show solution
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 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
Show solution
Solution
Total Amount = 5000(1 + 0.08)^1 = 5000(1.08) = 5400.00
Correct Answer:
A
— $5400.00
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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
Show solution
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%
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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%
Show solution
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%
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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
Show solution
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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