The difference between Simple interest and compound interest on a certain sum for 2 years at the rate of 10% is rs 50. find the principal
Answers
Here is a list of some basic definition and formulas to solve problems on Interest.
Principal: This is the sum of money lent or borrowed.
Interest: This is the extra money paid for taking the money as loan. This is often expressed as a percentage.
Say, the interest is 10% on a loan of Rs. 100. Then the interest in amount is Rs. 10 and at the end of the year, the amount to be paid is Rs. 110.
Time: This is the time period for which the money is lent or the time period in which the money has to be returned with interest.
Simple Interest
As the name implies, the calculation of simple interest is pretty simple. Multiply the principal amount with the number of years and the rate of interest.
Simple Interest Formula:
Simple Interest = Principal * Time * Rate of interest / 100
Abbreviated as SI = PTR/100
Compound Interest
In compound interest, the principal amount with interest after the first unit of time becomes the principal for the next unit.
Say, when compounded annually for 2 years, the principal amount with interest accrued at the end of first year becomes the principal for the second year.
Compound Interest Formula:
Amount = Principal * [1 + Rate of Interest/100]Time period
Abbreviated as Amount = P * [1 + R/100]t, when compounded annually.
Sometimes, the interest is also calculated half-yearly or quarterly.
When compounded semi-annually or half-yearly,
Amount = P[1 + (R/2)/100]2t
When compounded quarterly,
Amount = P[1 + (R/4)/100]4t
Present worth of Principal P due t years hence is given by:
P/[1+ R/100]t