Contents:

Interest

Important Terms

Simple Interest

Compound Interest


Interest Notes





Interest:

Whenever, someone lends money to someone, the borrower pays additional charge along with the money, known as interest. 

For example: If we take loan from someone, we have to return the money back. Also, we need to pay some charge for borrowing the money.

Another example: When we deposit money to bank, the bank is taking loan from us. Therefore, they will pay us interest as a privilege of borrowing money.



Some Important Terms:

Principal: Principal is the total money someone lends or borrows. In case of bank, the total money we deposit in the bank is called Principal. It is represented by 'P'.

Rate of Interest: Rate of Interest is the certain percentage of Principal that a borrower pays to the lender as an Interest. It is represented by 'R%'

Duration of Time: Duration of time defines for how long the money has been borrowed or lended. It is represented by 'T'.

Interest: The money that a borrower pays to the lender as a privilege of borrowing money is called Interest. It is represented by 'I'.

Amount: The sum including Principal and Interest that a borrower pays to the lender is called Amount. It can be represented by 'A'.


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Interest to be paid can be calculated in two ways:
  • Calculation of Simple Interest
  • Calculation of Compound Interest




Calculation of Simple Interest:


When the Interest is calculated for 'T' years on the original principal only, it is called calculation of Simple Interest.

Simple Interest can be calculated in the easiest way. You will have to remember just some little formulae that will help you in every questions of Simple Interest.

Let us represent,
Simple Interest as 'SI'
Principal as 'P'
Time as 'T'
Rate as 'R'
Amount as 'A'

Here are the important Formulae:

Simple Interest = P * T * R%  = P*T*R/100

Amount = P + SI

Principal = ( SI*100 ) / (T*R)

Time = ( SI*100 ) / (P*R)

Rate = ( SI*100 ) / (P*R)

Principal = A - SI

SI = A - P





Calculation of Compound Interest:


You need to understand these simple Formulae to understand calculation of compound Interest. We highly recommend you to check the notes on Compound Interest to be more clear on this topic.

Here are the important formulae:

Compound Amount in 'T' Years = P (1 +R/100)^T

Compound Interest in 'T' Years = P [(1 +R/100)^T -1]

These two are the basic formulae of compound Interest.

Click here to learn more Formulae.

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