The term interest refers to the cost of borrowing money. The interest calculation varies from plan to plan and is also based on the lenders and the time period of lending/depositing the amount. This interest is calculated in different ways such as interest only on principal, interest on principal and interest so far earned/incurred, monthly interest, cumulative interest etc. The amount for which the interest is calculated can be a loan (amount borrowed for need) or a deposit (amount deposited as savings).
Definition
The interest which is calculated only on the principal amount borrowed or deposited is termed to be Simple Interest that is denoted as SI in short. This type of interest does not include the interest so far incurred or earned on the principal amount.
When an amount is borrowed, the amount borrowed is called the Principal. The duration which the borrower takes to return the Principal is termed as the time period and is calculated in number of days/months/year. The next and most important part is the rate of interest which states the interest percentage for the given principal amount. All the three put together explains what is Simple Interest. The interest percentage is directly proportional to the lender and the time duration to repay the amount. Also it depends upon whether it is a loan or a deposit.
Formula for SI Calculation
Formula 1: “R as number”
The Simple Interest Formula is given by S.I = (P*N*R)/100.
Formula 2: “R as percentage”
The Simple-Interest Formula is given by S.I = P*N*R.
This shows how to calculate Simple Interest using the interest for the given principal amount P, with rate of interest R/period of a given period of time P.
Example of SI Calculation
If a principal amount of Rupees 1000 is borrowed/deposited by a person for a period of 2 years with 3% rate of interest, then the simple-interest is given by
By applying the values of P, N and R given, we get
Formula 1: R as number
We know that the rate of interest is 3%. We take R = 3
S. I. = (P * N* R)/100
S. I. = (1000 * 2 * 3)/100 = 6000/100 = 60
Formula 2: R as percentage
We know that R = 3% = 3/100 = .03
S.I. = P * N* R
S.I. = 1000*2*.03 = 60.00 = 60
Applications of SI
In post offices, schemes such as MIS pay simple interest for the amount deposited for five years as recurring deposit.
Credit cards charging simple-interest for the amount to be paid is more beneficial.
Definition
The interest which is calculated only on the principal amount borrowed or deposited is termed to be Simple Interest that is denoted as SI in short. This type of interest does not include the interest so far incurred or earned on the principal amount.
When an amount is borrowed, the amount borrowed is called the Principal. The duration which the borrower takes to return the Principal is termed as the time period and is calculated in number of days/months/year. The next and most important part is the rate of interest which states the interest percentage for the given principal amount. All the three put together explains what is Simple Interest. The interest percentage is directly proportional to the lender and the time duration to repay the amount. Also it depends upon whether it is a loan or a deposit.
Formula for SI Calculation
Formula 1: “R as number”
The Simple Interest Formula is given by S.I = (P*N*R)/100.
Formula 2: “R as percentage”
The Simple-Interest Formula is given by S.I = P*N*R.
This shows how to calculate Simple Interest using the interest for the given principal amount P, with rate of interest R/period of a given period of time P.
Example of SI Calculation
If a principal amount of Rupees 1000 is borrowed/deposited by a person for a period of 2 years with 3% rate of interest, then the simple-interest is given by
By applying the values of P, N and R given, we get
Formula 1: R as number
We know that the rate of interest is 3%. We take R = 3
S. I. = (P * N* R)/100
S. I. = (1000 * 2 * 3)/100 = 6000/100 = 60
Formula 2: R as percentage
We know that R = 3% = 3/100 = .03
S.I. = P * N* R
S.I. = 1000*2*.03 = 60.00 = 60
Applications of SI
In post offices, schemes such as MIS pay simple interest for the amount deposited for five years as recurring deposit.
Credit cards charging simple-interest for the amount to be paid is more beneficial.
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