Simple Interest
Interest is a fee charged on borrowing money. It is the amount banks or lenders gain by lending money to some one. There is a fixed rate at which the borrower has to pay the interest. This rate is expressed in percent. The interest depends upon the time for which money is being borrowed, the rate of interest and of course, on the amount borrowed. There is an interval upon which the interest is calculated, it may be annually, half-yearly, quarterly, monthly, weekly, etc,.
Terminology of Simple Interest
Principal :
This is the original amount being borrowed on which the interest is calculated. This is denoted by 'P'
Time:
This is the duration on which the interest is calculated. This is denoted by 'T'
Rate:
This is the amount of interest earned per hundred of the borrowed amount ( Principal ). This is denoted by 'R'.
Amount:
This is the amount which has to be returned to the lender after the due interval. This is denoted by 'A'.
Interest:
This is the amount earned by the lender or the fee paid by the borrower. This is denoted by 'I'
Simple Interest Formula
Simple Interest is calculated by using the formula:
Simple Interest, I = ( P x R x T ) / 100
And Amount after the period is,
Amount = P + I
Here,
P = Principal
R = Rate %
T = Time
A = Amount
Problems on Simple Interest
Example :
Find simple interest on $1000 at 10% per annum for 3 years.
Solution:
Given data:
Principal, P = $1000
Rate of Interest, R = 10% compounded annually
Time, T = 3 years
Therefore,
Interest = ( P x R x T ) / 100
Plunging in the values
Interest = ( 1000 x 10 x 3 ) / 100
= 30000 / 100
= $ 300
Therefore the interest will be $300 after 3 years.
Related Tags
What is Simple Interest?,Meaning on Simple Interest, Study of Simple Interest