The value of money is not constant. It changes. When borrowed today, it should be paid tomorrow with an extra charge that is known as INTEREST.
There are two types of interest – Simple Interest and Compound Interest.
Let us understand the basic concept of SIMPLE INTEREST which is an important topic of Quantitative Aptitude Segment from exams perspective.
If a person X borrows some money from another person Y for a certain period, then after that specified period, X (borrower) has to return the borrowed money with some additional money. This additional money that X (borrower) has to pay is called Interest.
If the interest on a sum borrowed for a certain period is reckoned uniformly, then it is called Simple Interest and it is denoted by SI.
Formula to calculate simple interest:
The actual borrowed money is called Principal or Sum (P).
The time for which X the borrower has been used the borrowed money is called the Time (T).
The interest that X has to pay for every 100 rupees each year is called Rate Percent Per Annum (R).
Formula to calculate amount:
The amount (A) to be paid with interest after a certain time is the sum of the principal amount and its interest.
Formula to calculate time:
Time (in years) can be calculated by the formula below if the total Interest (I) and Interest for one year on the Principal amount (I1) are known.
Where I is the total Interest and I1 is the Interest for one year.
Let us understand the formula of Simple Interest with an example:
Example: What will be the simple interest on Rs. 78,000 at 10% per annum for 9 years?
Solution: Here, given that
Principal (P) =78,000
Rate (R) = 10%
Time (T) = 9 years
Now, we know that
Therefore, the simple interest on Rs. 78,000 at 10% per annum for 9 years will be Rs. 70,200.
So, now you know that calculating Simple Interest is as easy as ABC.