Compound Interest: Comparing Compounding Periods Quiz — 5 Free Questions

📖 Read the passage, then answer the questions below

Priya invests Rs. 40,000 in a fixed deposit that offers compound interest at an annual rate of 20%, but the interest is compounded half-yearly rather than once a year, for a total duration of 1 year. Separately, her brother Karan invests Rs. 40,000 in a different scheme offering the same annual rate of 20%, but compounded annually, also for 1 year, so that the two siblings can compare how the compounding frequency alone affects the final amount, even though both schemes advertise the same headline annual rate.

Their cousin Divya invests a larger sum of Rs. 90,000 in a third scheme offering compound interest at an annual rate of 40%, compounded half-yearly, for a total duration of 1 year, to see how a higher rate combined with half-yearly compounding compares to the other two siblings' results once all three schemes have matured.

Question 1

Consider the following three statements: I. Priya's effective interest rate for the year is higher than Karan's, even though both schemes advertise a 20% annual rate. II. Divya's compound interest earned is more than four times Karan's. III. Divya's final amount is less than Rs. 1,25,000. Which of the statements is/are true?

Question 2

What is the difference between the compound interest earned by Divya and the combined compound interest earned by Priya and Karan together?

Question 3

If Karan's scheme had also been compounded half-yearly at 10% per half-year, like Priya's, what would his final amount have been?

Question 4

What is the half-yearly interest rate applied to Priya's investment?

Question 5

What percentage of her principal does Divya earn as interest?

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About Compound Interest: Comparing Compounding Periods

CLAT's Quantitative Techniques section pairs a short data-rich scenario with several straightforward numeric questions -- here, compound interest with different compounding periods applied to three separate invented investments, so every answer can be worked out from the figures given, without any outside knowledge.

This quiz is built around three investments: two siblings comparing half-yearly versus annual compounding at the same headline rate, and a cousin investing a larger sum at a higher rate with half-yearly compounding, fully worked out up front. Every question below is answered using those same figures -- nothing new is introduced question to question.

The twenty-four questions move through the kind of angles CLAT actually tests: half-year and full-year amounts, total compound interest, effective versus headline rates, ratios and differences between the three investments, and a multi-statement combination question.

Only five of the twenty-four questions are shown on any single attempt, so replaying this quiz brings a genuinely different mix of angles on the same three investments rather than the same five memorised by rote.