What is the compound interest on Rs. 16400 for 1 year at 9% per annum when compounded half-yearly?
Rs. 1509.21
Calculating Compound Interest Compounded Half-Yearly
This problem requires us to calculate the compound interest on a principal amount when the interest is compounded half-yearly. Understanding how the compounding frequency affects the interest rate and time period is crucial.
Understanding the Key Terms
- Principal (P): The initial amount of money deposited or borrowed. Here, P = Rs. 16400.
- Annual Interest Rate (R): The rate at which interest is charged or earned per year. Here, R = 9% per annum.
- Time (T): The duration for which the money is invested or borrowed. Here, T = 1 year.
- Compounding Frequency: How many times the interest is calculated and added to the principal within a year. Here, it is compounded half-yearly, meaning twice a year (n=2).
Adjusting Rate and Time for Half-Yearly Compounding
When interest is compounded half-yearly, we need to adjust the annual rate and the total time period:
- Rate per compounding period (r): The annual rate is divided by the number of compounding periods per year. $$ r = \frac{\text{Annual Rate}}{\text{Number of compounding periods per year}} = \frac{9\%}{2} = 4.5\% \text{ per half-year} $$ In decimal form, $r = 4.5 / 100 = 0.045$.
- Total number of compounding periods (N): The total time in years is multiplied by the number of compounding periods per year. $$ N = \text{Time in years} \times \text{Number of compounding periods per year} = 1 \text{ year} \times 2 = 2 \text{ half-years} $$
Compound Interest Formula for Half-Yearly Compounding
The formula for the amount (A) after N periods when the rate per period is r is:
$$ \text{A} = \text{P} (1 + r)^N $$The compound interest (CI) is the difference between the amount and the principal:
$$ \text{CI} = \text{A} - \text{P} $$Step-by-Step Calculation of Compound Interest
Let's plug in the values into the formula:
- Calculate the amount (A): $$ \text{A} = 16400 (1 + 0.045)^2 $$ $$ \text{A} = 16400 (1.045)^2 $$ First, calculate $(1.045)^2$: $$ (1.045)^2 = 1.045 \times 1.045 = 1.092025 $$ Now, calculate the amount: $$ \text{A} = 16400 \times 1.092025 $$ $$ \text{A} = 17909.21 $$ The total amount after 1 year compounded half-yearly is Rs. 17909.21.
- Calculate the Compound Interest (CI): $$ \text{CI} = \text{A} - \text{P} $$ $$ \text{CI} = 17909.21 - 16400 $$ $$ \text{CI} = 1509.21 $$ The compound interest is Rs. 1509.21.
Alternatively, you can calculate the interest for each half-year period:
- Interest for the 1st half-year: $$ \text{I}_1 = \text{Principal} \times \text{Rate per period} = 16400 \times 0.045 = 738 $$ Amount after 1st half-year = $16400 + 738 = 17138$.
- Interest for the 2nd half-year: $$ \text{I}_2 = \text{Amount after 1st half-year} \times \text{Rate per period} = 17138 \times 0.045 = 771.21 $$ Amount after 2nd half-year = $17138 + 771.21 = 17909.21$.
- Total Compound Interest (CI): $$ \text{CI} = \text{I}_1 + \text{I}_2 = 738 + 771.21 = 1509.21 $$
Both methods confirm that the compound interest on Rs. 16400 for 1 year at 9% per annum compounded half-yearly is Rs. 1509.21.
Conclusion
Based on the calculations, the compound interest is Rs. 1509.21.
| Particulars | Value |
|---|---|
| Principal (P) | Rs. 16400 |
| Annual Rate (R) | 9% |
| Time (T) | 1 year |
| Compounding Frequency | Half-yearly (n=2) |
| Rate per period (r) | 4.5% or 0.045 |
| Number of periods (N) | 2 |
| Amount (A) | Rs. 17909.21 |
| Compound Interest (CI) | Rs. 1509.21 |
Revision Table: Compound Interest Concepts
| Concept | Description | Formula Example (Annual Compounding) |
|---|---|---|
| Simple Interest (SI) | Interest calculated only on the principal amount. | $\text{SI} = \frac{\text{P} \times \text{R} \times \text{T}}{100}$ |
| Compound Interest (CI) | Interest calculated on the principal amount and accumulated interest from previous periods. | $\text{A} = \text{P} (1 + \frac{\text{R}}{100})^\text{T}$, $\text{CI} = \text{A} - \text{P}$ |
| Amount (A) | The total sum including principal and interest. | $\text{A} = \text{P} + \text{CI}$ |
| Compounding Frequency | How often interest is added to the principal (e.g., annually, half-yearly, quarterly, monthly). | Adjusts rate and time period in CI formula. |
Additional Information: Compounding Frequency Impact
The frequency of compounding significantly impacts the total compound interest earned over a period. The more frequently interest is compounded, the higher the total interest will be, assuming the same annual rate.
- Annual Compounding: Interest calculated once a year. N = T, r = R/100.
- Half-Yearly Compounding: Interest calculated twice a year. N = 2T, r = R/200.
- Quarterly Compounding: Interest calculated four times a year. N = 4T, r = R/400.
- Monthly Compounding: Interest calculated twelve times a year. N = 12T, r = R/1200.
In this problem, compounding half-yearly means the interest earned in the first six months is added to the principal, and then the interest for the next six months is calculated on this new, larger principal. This process leads to higher interest compared to annual compounding over the same period.
Important Questions from Compound Interest
A person borrowed Rs. 10000 on compound interest at the rate of 40 percent per annum. If the interest is compounded half yearly, then what will be the amount to be paid after 1.5 years?
The difference between the compound interest (compounding annually) and the simple interest on a sum of money at the rate of 40 per cent per annum for 2 years is Rs. 2400. What is the amount?
In how many years will a sum of Rs.1875 amount to Rs.2187 at 8 percent p.a. compound interest?
A sum of money has increased by 45% in 9 years at simple interest. What will be the compound interest of Rs. 12,000 after 3 years at the same rate?
At a certain rate of compound interest a certain sum amounts to Rs. 64800 in 4 years and Rs. 93312 in 6 years. What is the compound interest earned in fifth year?
