Factors Affecting Interest: Interest depends on the rate of interest, time, and principal. So, before knowing the factors affecting interest let us know about the interest, principal, rate of interest, and period of time. There are some formulas to calculate the interest. We have provided step-by-step explanations for all the questions in the coming sections. Thus all the students of 5th grade are advised to scroll down this page to know more information on factors affecting interest.
Refer Articles:
- To find Time when Principal Interest and Rate are given
- To find Rate when Principal Interest and Time are given
What is meant by Interest?
Interest is nothing but the extra amount of money you get after depositing the money. Interest is a payment from a borrower to a depositor of an amount above repayment of the amount that is borrowed at a particular rate.
Factors Affecting interest
There are two types of interest. They are Simple Interest and Compound Interest. The three important factors that affect interest are
1. Principal
2. Rate of interest
3. Period of time
Principal: It is the amount of money borrowed from the lender.
Period of time: It is meant by the time or number of years for which the money is debited.
Rate of interest: The interest that is calculated at a rate percent which is finalized by the bank every year.
Formula for Simple Interest
The simple interest depends on the rate of interest, principal, and period of time. S.I remains the same every year. Here is the formula to calculate the Simple Interest (S.I)
S.I = P × T × R/100
Where,
P is Principal
T is a period of time
R is the rate of interest
Principal + Interest = Amount
P + I = A
Formula for Compound Interest
Compound Interest means the interest that is earned on prior interest added to the principal. Due to compounding, the total amount that is borrowed grows exponentially. The interest is calculated on a daily, weekly, monthly, or yearly basis.
A = P(1 + r/n)nt
Where,
A = Amount
P = Principal
n = number of times interest is compounded per unit ‘t’
t = time
r = Rate of interest
Also, Refer:
Factors Affecting Interest Rate Examples
Example 1.
Find the interest for 25000 at 7 percentage per annum for 4 years ?
Solution:
Given,
Principal = 25000
Rate = 7 per annum
Time = 4 years
Interest = P × T × R/100
P = principal
R = rate
T = time
Interest = principal × time × rate/100
= 25000 × 4 × 7/100
=7000
Thus the interest is $7000.
Example 2.
Find the interest to be paid at the end of the year on $700 at 3 percent per annum?
Solution:
Given that,
Principal = $700
Rate = 3 per annum
Time = 1 years
Interest = P × T × R/100
P = principal
R = rate
T = time
Interest = principal × time × rate/100
= 700 × 3 × 1/100
= 21
Thus the interest is $21.
Example 3.
Find the interest to be paid at the end of the year on $8000 at 6 1/2 percentage per annum ?
Solution:
Given that,
Principal = $8000
Rate = 6 1/2 per annum
Time = 1 years
Interest = P × T × R/100
P = principal
R = rate
T = time
Interest = principal × time × rate/100
= $8000 × 1 × 6 1/2/100
= $8000 × 1 × 6.5/100
= $520
Therefore the interest is $520.
Example 4.
Find the interest for 12370 at 2 percentage per annum for 4 years ?
Solution:
Given,
Principal = $12370
Rate = 2 per annum
Time = 4 years
Interest = P × T × R/100
P = principal
R = rate
T = time
Interest = principal × time × rate/100
$12370 × 4 × 2/100
= $989.6
Thus the interest is $989.6
Example 5.
Find the interest for Rs 2000 at 4% per annum for 6 years ?
Solution:
Given,
Principal = 2000
Rate of interest = 4 per annum
Time = 6 years
Interest = P × T × R/100
P = principal
R = rate
T = time
Interest = principal × time × rate/100
= Rs. 2000 × 6 × 4/100
= Rs. 480
Thus the interest is Rs. 480