TNPSC Group II · Bite-size lessons
Simple and Compound Interest
About 6 min · Aptitude and Mental Ability · English
Time worked out from the lesson's 375 words at 150 words a minute, plus a minute for each question.
Simple and Compound Interest is a listed topic in TNPSC Group II/IIA aptitude section. Questions typically involve calculating interest amounts, finding principal/rate/time, comparing SI and CI, and understanding EMI basics. This topic bridges pure arithmetic with real-world banking applications.
Key ideas
- Simple Interest (SI): Interest is calculated only on the original principal throughout the entire period. The interest remains constant each year.
- Compound Interest (CI): Interest is calculated on principal plus previously accumulated interest. Interest grows each period because the base amount increases.
- Compounding frequency matters: Interest can compound annually, half-yearly, quarterly, or monthly. More frequent compounding yields higher returns.
- CI - SI difference: For the same P, R, T, compound interest always exceeds simple interest (except for T = 1 year with annual compounding, where they are equal).
- Effective Rate: When compounding is more frequent than annual, the effective annual rate exceeds the nominal rate.
Watch out for
- Confusing rate conversion for different periods → For half-yearly compounding, divide annual rate by 2 AND multiply time by 2. Both adjustments are needed.
- Using SI formula for CI problems → Read carefully whether "compound" or "simple" is mentioned. Default assumption should never be made.
- Forgetting CI includes principal in the amount → CI = Amount - Principal, not just the final amount. Many students report A as CI.
Quick reference
- SI = PTR/100; CI = P[(1 + R/100)^n - 1]
- CI - SI for 2 years = P(R/100)²
- Half-yearly: rate ÷ 2, time × 2; Quarterly: rate ÷ 4, time × 4
- Money doubles: 100/R years (SI) or 72/R years (CI)
- For same P, R, T: CI > SI always (except T = 1 year, annual compounding → CI = SI)
Check yourself: 3 questions
1. A sum of Rs. 8000 is lent at 5% per annum simple interest for 3 years. What is the total interest earned?
2. A man borrows Rs. 12000 at 10% per annum compound interest. If the interest is compounded annually, what amount will he have to pay back after 2 years?
3. The difference between compound interest and simple interest on a certain sum at 8% per annum for 2 years is Rs. 64. What is the principal amount?
This lesson is cut from the topic's note, not rewritten. Fact-checked on 17 Oct 2026: an AI-assisted check of this note against cited sources; the errors it found were corrected that day. Some errors may remain. The questions are from Shishya's validated question bank.
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