Simple Interest concept

Simple Interest

Interest is defined as money charged for borrowing the money from someone / banks. There are four words mainly used in this category.

1. Principal

It is denoted by P (Principal ). Principal is the amount of money borrowed for a certain time.

2. Rate of interest

It is denoted by R ( Rate of interest ). Money paid for Rs. 100 per year called rate of interest.

3. Amount

It is denoted by A ( Amount ). The sum of Principal and interest is called amount.

4. Time

Denoted by T ( Time ). It is the period for which we borrowed money is called Time.

5. Simple Interest

Simple interest is denoted by SI. If the interest is calculated on the amount which we borrowed at any rate of interest for any period of time is called simple interest.

Basic Formulas

Simple Interest = ( Principal * Time * Rate ) / 100

Example sum

1. Find the simple interest on Rs. 68000 at [ 16 * ( 2 / 3 ) ] % per annum for 9 months?

Answer: Principal = Rs. 68000
Rate = ( 50 / 3 ) %
Time = ( 9 / 12 ) years
= ( 3 / 4 ) years
Simple interest = ( Principal * Rate * Time ) / 100
= Rs. [ ( 68000 * ( 50 / 3 ) * ( 3 / 4 ) ) / 100 ]
= Rs. [ ( 68000 * 50 * 3 ) / ( 50 * 4 * 100 ) ]
= Rs. 8500

Basic Formulas

Amount = Principal + Simple Interest

Example sum

1. Rs. 800 amounts to Rs. 920 in 3 years at simple interest. If the interest rate is increased by 3%, it would amount to how much ?

Answer: Principal = 800
Simple interest = 120
Time = 3 year
Rate = ( 100 * Simple interest ) / ( Principal * Time )
= ( 100 * 120 ) / ( 800 * 3 )
= 5%
New rate = 8 %
Principal = 800
Time = 3 year
Simple Interest = ( Principal * Rate * Time ) / 100
= ( 800 * 8 * 3 / 100 )
= 192
New Amount = Principal + Simple Interest New amoun = 800 + 192
= Rs. 992

Basic Formulas

Principal = ( 100 * Simple Interest ) / ( Time * Rate )

Example sum

1. A man took loan from a bank at the rate of 8% per annum. simple interest. After 4 years he had to pay Rs. 6200 interest only for the period. Find the principal amount borrowed by him ?

Answer: Time = 4 years
Simple Interest = Rs. 6200
Rate = 8%
Principal = ( 100 * Simple Interest ) / ( Rate * Time )
= ( 100 * 6200 ) / ( 8 * 4 )
= Rs. 19375

Basic Formulas

Time = ( 100 * Simple Interest ) / ( Principal * Rate )

Example sum

1. How much time will it take for an amount of Rs. 450 to yield Rs. 81 as interest at 4.5% per annum of simple interest?

Answer: Simple interest = Rs. 81
Rate = 4.5 %
Principal = Rs. 450
Time = ( 100 * Simple Interest ) / ( Principal * Rate )
= ( 100 * 81) / ( 450 * 4.5 )
= 4 years

Basic Formulas

Rate = (100 * Simple Interest ) / ( Principal * Time )

Example sum

1. A four years NSC certificate was purchased for Rs. 500 with Rs. 1000 being the maturity value. Find the rate of Simple interest?

Answer: Principal = Rs. 500
Simple Interest = Rs. 500
Time = 4 years
Rate = ( 100 * Simple Interest ) / ( Principal * Time )
= (100 * 500 ) / ( 500 * 4 )
= 100 / 4
= 25%