Question

Simple interest and compound interest notes

Answer 1

Simple Interest (SI) 

The interest that is calculated uniformly on a sum of money is called simple interest (SI). Principal is the money borrowed or lent out for certain period is called the principal / sum. Interest is the extra money paid for using other money.

Usually, the following denotations are used:-

Principal = P

Rate of Interest = r % per annum (p.a.)

Time = t years

The, formula for Simple Interest is given by:- Simple Interest (SI) = (P×r×t)) /100  Also, Amount (A) = SI + P. Compound Interest Here, interest is paid on both the original principal and on earned interest (unlike SI). In day-to-day life, compounded interest is more common. Thus, amount at the end of the 1st year will become the principal for the 2nd year and so on. The formula for Compound Interest ( CI ) is given by:- CI = [P (1+r/100) ^ n] – P The more commonly used formula is:- A = P (1+r/100) ^n