Interest
Simple and compound interest questions differ in one respect: simple interest is charged on the original principal every year, while compound interest is charged on the running total. For two years the gap between them is always the principal times the rate squared over ten thousand — a one-step shortcut that answers most exam questions directly.
Interest questions are worth two to three marks in most bank papers and appear in SSC quantitative aptitude as well. They are unusual in that a single memorised relationship — the two-year difference — converts the majority of them into one multiplication, so the topic rewards recognising the question type more than computing carefully.
Try it against the clock. Simple & Compound Interest runs at 40s easy, 50s medium and 65s hard. The clock is stamped and judged on our server, so the limit you see is the deadline that is actually enforced — and it starts when you tap Start, not while the question is loading.
A rate of 10% turns the amount into 1.1 times itself each year, so two years gives 1.21 times the principal and three gives 1.331. Thinking in multipliers avoids the formula entirely and extends naturally to any number of years.
For two years, compound interest exceeds simple interest by P × R² ÷ 10000. If a question gives that difference and the rate, the principal follows in one division. This appears more often than any other interest question type.
Over three years the difference is P × R² × (300 + R) ÷ 1000000. It is worth knowing but far less common than the two-year case, so learn it second and only after the two-year form is automatic.
Interest compounded half-yearly at 10% for one year is two periods at 5%, giving 1.05² = 1.1025. Quarterly is four periods at a quarter of the rate. Adjust before computing, not after.
| Situation | The relationship |
|---|---|
| Simple interest | P × R × T ÷ 100 |
| Compound amount | P × (1 + R/100) raised to T |
| CI − SI over two years | P × R² ÷ 10000 |
| CI − SI over three years | P × R² × (300 + R) ÷ 1000000 |
| Half-yearly compounding | Halve the rate, double the periods |
| Amount doubles under CI | Roughly 72 ÷ R years |
Generated by the same engine that mints the ComputePrep daily. Each answer is computed from the numbers printed in the question, and the walkthrough below each one is the engine's own working — not a solution written afterwards. Reload this page's live drill and you get different numbers.
A sum of ₹120000 is invested for 2 years at 20% per annum.
By how much does the compound interest exceed the simple interest?
A sum of ₹30000 is invested for 2 years at 25% per annum.
By how much does the compound interest exceed the simple interest?
₹80000 is deposited for 2 years at 25% per annum, simple interest.
What is the simple interest earned?
The wrong options are not random numbers. Each one is the result of a specific careless error for this topic, so picking one tells you which habit is costing you marks.
Compound interest charges the second year on the first year's closing amount, not on the starting principal. Doing otherwise silently computes simple interest, and that value is always among the options.
Half-yearly compounding is two periods at half the rate, not one period at the annual rate. Adjust both numbers before you begin — changing only one is a common and costly slip.
The amount includes the principal; the interest does not. Questions alternate between asking for each, and both values appear in the option list. Read which one is wanted before computing.
It is always the principal times the rate squared, divided by ten thousand. At 10% on ₹20,000 the gap is 20000 × 100 ÷ 10000 = ₹200. Because so many exam questions supply that difference and ask for the principal, this one relationship converts them into a single division.
Halve the rate and double the number of periods. Ten percent per annum compounded half-yearly for one year is two periods at 5%, so the multiplier is 1.05 × 1.05 = 1.1025 rather than 1.10. Quarterly compounding is four periods at a quarter of the rate.
Divide 72 by the rate for a close approximation under compound interest — at 8% that is about nine years. It is an estimate rather than an identity, but it is accurate enough to eliminate options quickly at exam rates.
ComputePrep is free, needs no account, and is not affiliated with IBPS, SBI, SSC, RRB or any exam authority.
