CA Foundation Exam > CA Foundation Videos > Quantitative Aptitude for CA Foundation > Simple Interest and Compound Interest Tricks
Simple Interest and Compound Interest Tricks Video Lecture | Quantitative Aptitude for CA Foundation
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FAQs on Simple Interest and Compound Interest Tricks Video Lecture - Quantitative Aptitude for CA Foundation
| 1. What is the formula for calculating simple interest? |  |
Ans. The formula for calculating simple interest is:
Simple Interest = Principal (P) * Rate (R) * Time (T) / 100
| 2. How is compound interest different from simple interest? | |
Ans. Compound interest is the interest calculated on both the principal amount and the accumulated interest from previous periods. In contrast, simple interest is calculated only on the principal amount. This means that compound interest grows at a faster rate compared to simple interest.
| 3. When is it more beneficial to opt for compound interest instead of simple interest? | |
Ans. It is more beneficial to opt for compound interest when the interest is compounded at regular intervals and the investment or loan term is long. This way, the interest can accumulate and compound over time, resulting in higher returns compared to simple interest.
| 4. Can you provide an example to understand the concept of compound interest better? | |
Ans. Sure! Let's say you invest $1,000 in a fixed deposit account with an annual interest rate of 5%. If the interest is compounded annually, after one year, you would have $1,050 ($1,000 + $50 interest). In the second year, the interest will be calculated on $1,050 instead of $1,000, resulting in a higher interest amount. This compounding effect continues for subsequent years.
| 5. Are there any limitations or drawbacks of using compound interest? | |
Ans. One limitation of compound interest is that it may not be suitable for short-term investments or loans. In such cases, the compounding effect may not significantly impact the final returns. Additionally, compound interest can also lead to higher debt burdens if not managed properly, as the interest keeps accumulating over time.
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Nov 08, 2024 Last updated |
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