Expalin simple interest
Answers
Answer:
Simple interest is interest calculated on the principal portion of a loan or the original contribution to a savings account. Simple interest does not compound, meaning that an account holder will only gain interest on the principal, and a borrower will never have to pay interest on interest already accrued.
Step-by-step explanation:
Simple Interest Formula
The Formula for simple interest helps you find the interest amount if the principal amount, rate of interest and time periods are given.
Simple interest formula is given as:
SI = (P × R ×T) / 100
Where SI = simple interest
P = principal
R = interest rate (in percentage)
T = time duration (in years)
In order to calculate the total amount, the following formula is used:
Amount (A) = Principal (P) + Interest (I)
Where,
Amount (A) is the total money paid back at the end of the time period for which it was borrowed.
Simple Interest Formula For Months
The formula to calculate the simple interest on a yearly basis has been given above. Now, let us see the formula to calculate the interest for months. Suppose P be the principal amount, R be the rate of interest per annum and n be the time (in months), then the formula can be written as:
- Simple Interest for n months = (P × n × R)/ (12 ×100)
Difference Between Simple Interest and Compound Interest
There is another type of interest called compound interest. The major difference between simple and compound interest is that simple interest is based on the principal amount of a deposit or a loan whereas the compound interest is based on the principal amount and interest that accumulates in every period of time. Let’s see one simple example to understand the concept of simple interest.
Example problem
Example 1:
Rishav takes a loan of Rs 10000 from a bank for a period of 1 year. The rate of interest is 10% per annum. Find the interest and the amount he has to the pay at the end of a year.
Solution:
Here, the loan sum = P = Rs 10000
Rate of interest per year = R = 10%
Time for which it is borrowed = T = 1 year
Thus, simple interest for a year, SI = (P × R ×T) / 100 = (1000× 100 ×1) / 100 = Rs 1000
Amount that Rishav has to pay to the bank at the end of the year = Principal + Interest = 10000 + 1000 = Rs 11,000