Example 1
What is the compound interest on ₹4,000 for 2 years at 10% per annum, compounded annually?
Answer: B) ₹840
A = 4,000 × (1 + 10/100)² = ₹4,840; CI = A − P = ₹840.
Compound Interest questions for competitive exams: rules, worked examples and practice
Compound interest adds each year's interest to the principal, so the next year's interest is earned on a bigger amount.
Key rules and formulas
- Amount A = P × (1 + R/100)^n; compound interest = A − P.
- Half-yearly compounding: use R/2 and 2n.
- For 2 years, CI − SI = P × (R/100)².
- For 3 years, CI − SI = P × (R/100)² × (3 + R/100).
Common traps
- Giving the amount when the question asks for the interest.
- Using simple-interest arithmetic for the second year.
Where Compound Interest is asked
- IBPS Clerk Prelims (Numerical Ability)
- IBPS PO Prelims (Quantitative Aptitude)
- SBI Clerk Prelims (Numerical Ability)
- SBI PO Prelims (Quantitative Aptitude)
- SSC CGL Tier 1 (Quantitative Aptitude)
- SSC CGL Tier 2 (Mathematical Abilities)
- SSC CHSL Tier 1 (Quantitative Aptitude)
Worked examples
Example 2
What is the compound interest on ₹20,000 for 2 years at 20% per annum, compounded annually?
Answer: A) ₹8,800
A = 20,000 × (1 + 20/100)² = ₹28,800; CI = A − P = ₹8,800.
Example 3
What is the compound interest on ₹15,000 for 2 years at 20% per annum, compounded annually?
Answer: D) ₹6,600
A = 15,000 × (1 + 20/100)² = ₹21,600; CI = A − P = ₹6,600.
Frequently asked questions
What is Compound Interest in competitive exams?
Compound interest adds each year's interest to the principal, so the next year's interest is earned on a bigger amount.
Which exams ask Compound Interest questions?
On MockBazaar, Compound Interest questions appear in IBPS Clerk Prelims, IBPS PO Prelims, SBI Clerk Prelims, SBI PO Prelims, SSC CGL Tier 1, SSC CGL Tier 2, SSC CHSL Tier 1.
What is the most common mistake in Compound Interest?
Giving the amount when the question asks for the interest.