- Simple interest is calculated only on the principal amount, or on that portion of the principal amount that remains.
- It excludes the effect of compounding.
- Simple interest can be applied over a time period other than a year, e.g. every month.
A = Total Accrued Amount (principal + interest)
P = Principal Amount
I = Interest Amount
r = Rate of Interest per year in decimal; r = R/100
R = Rate of Interest per year as a percent; R = r * 100
- t = Time Period involved in months or years
From the base formula, A = P(1 + rt) derived from A = P + I and I = Prt so A = P + I = P + Prt = P(1 + rt)
Suppose you give Rs100 to a bank which pays you 5% simple interest at the end of every year. After one year you will have Rs105, and after two years you will have Rs110. This means that you will not earn an interest on your interest. Your interest payments will be Rs5 per year no matter how many years the initial sum of money stays in a bank account.
1.A sum of money at simple interest amounts to Rs. 815 in 3 years and to Rs. 854 in 4 years. The sum is:
S.I. for 1 year = Rs. (854 – 815) = Rs. 39.
S.I. for 3 years = Rs.(39 x 3) = Rs. 117.
Principal = Rs. (815 – 117) = Rs. 698.
2.Mr. Thomas invested an amount of Rs. 13,900 divided in two different schemes A and B at the simple interest rate of 14% p.a. and 11% p.a. respectively. If the total amount of simple interest earned in 2 years be Rs. 3508, what was the amount invested in Scheme B?
Let the sum invested in Scheme A be Rs. x and that in Scheme B be Rs. (13900 – x).
28x – 22x = 350800 – (13900 x 22)
6x = 45000
x = 7500.
So, sum invested in Scheme B = Rs. (13900 – 7500) = Rs. 6400.
3. How much time will it take for an amount of Rs. 450 to yield Rs. 81 as interest at 4.5% per annum of simple interest?
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Topics covered in this e-book are :
- Simple Interest
- Compound Interest