Simple Interest is the method of finding the amount of interest charged on a sum at a particular rate and during a specified time period. This article will introduce you to the basics of borrowing money and the basic simple interest that is obtained from borrowing. You’ll also learn about terminologies like principal, quantity, rate of interest, and time period. Go through our other articles similar to this concept by visiting our 7th Grade Math Concepts.
Simple Interest Definition
Simple interest is a simple and quick technique to compute interest on money. Interest is always applied to the initial principal amount under the simple interest method, with almost the same rate of interest for each time cycle. When we put our money in a bank, the bank gives us interest on it. Banks charge many sorts of interest, one of which is simple interest.
Simple Interest Formula
Simple interest is computed using the formula SI = PTR/100
- Where P = Principal,
- R = Annual Rate of Interest in %, and
- T = Time, commonly expressed as the number of years.
The interest rate is expressed in percentage r percent and is written as r/100
Amount = Principal + Simple Interest
A = P + S.I.
A = P + PRT/100
A = P(1 + RT/100)
A = P(1+rT)
Important Terminologies Related to Simple Interest
- Principal: The principal is the money borrowed from the bank or invested at the beginning. P represents the principal.
- Rate: The rate of interest at which the principal amount is handed to someone for a set period of time; the rate of interest can be 5%, 10%, or 15%, for example. R represents the interest rate.
- Time: The length of time for which the primary amount is supplied to someone. T denotes time. T denotes time.
- Amount: When a person takes out a loan from a bank, he or she must repay the principal loaned plus the interest sum, and the entire amount repaid is known as the Amount.
Tips & Tricks to Calculate Simple Interest
Below are the tricks to keep in mind while determining the simple interest. They are as such
- To calculate the time period, the day on which money is lent is excluded, but the day on which money must be repaid is counted.
- The rate of interest is the amount of interest paid on every $100 over a specified time period.
- Compound interest always has a higher interest rate than basic interest.
- The compound interest formula or methods are developed from simple interest computation methods.
The formula always keeps the interest rate in fractions.
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Simple Interest Formula Examples with Solutions
Example 1:
Ronaldo obtains a one-year loan of Rs 20,000 from a bank. The annual interest rate is ten percent. Calculate the interest and the amount he must pay at the end of the year.
Solution:
The loan amount = P = Rs 20000 in this case.
R = ten percent annual interest rate
T = 1 year is the period for which it is borrowed.
Thus, the simple interest for a year is SI = (P*R*T) / 100 = (20000*10*1) / 100 = Rs 2000.
Rishav must pay the bank at the end of the year = Principal + Interest = 20000 + 2000 = Rs 22,000
Example 2.
Virat borrowed Rs 70,000 for three years at a 4.5 percent annual interest rate. Find and calculate the total interest earned after 3 years.
Solution:
Here Principal Vinay borrowed P = Rs 70,000
R is equal to 4.5 percent.
T = 3 years
The formula to calculate SI = (P*R*T)/100
= (70,000×4.5×3)/100
= Rs 9450
Therefore, interest gained after 3 years is Rs. 9450
Example 3.
Dhoni pays Rs 6000 as interest on the Rs 4000 he borrowed for two years. Determine the interest rate.
Solution:
Amount Dhoni paid = Rs 6000
Principal Dhoni bought as per given data = Rs 4000
We know the formula to calculate SI = A – P
Substituting the given data we have the equation as follows
= 6000 – 4000 = Rs 2000
T = 2 years
R = ?
SI = (P × R ×T) / 100
R = (SI × 100) /(P× T)
R = (2000*100/6000*2) = 16.67 percent
Thus, R = 16.67
FAQs on Simple Interest Calculation
1. What is the Purpose of Simple Interest?
Simple interest is utilized when the sum to be returned must be returned in a short period of time. As a result, simple interest is used in applicable fees, mortgages, savings calculations, and school loans.
2. What’s the Distinction Between Simple and Compound Interest?
Simple interest is interest paid just on principle, whereas compound interest is interest compounded at periodic intervals on both interest and principal.
3. How Do You Work Out Simple Interest?
SI = PRT/100, where P = Principal, R = Rate of Interest, and T = Time period, is the formula for calculating simple interest. In this case, the rate is expressed as a percentage (r%), which is written as r/100. In the case of simple interest, the principle is the amount of money that remains constant year after year.