Questions and Answers on Simple and Compound Interest

December 14, 2022

Simple Interest and Compound Interest Questions

Simple Interest When a person borrows money from someone for a specific period, then the borrower has to pay some extra money called Interest on the money borrowed for that period”. The money borrowed is called “Principal” . The total sum of money including the principal is known as the “Amount.” If the interest on the specific sum borrowed for a certain period is calculated uniformly, then it is called “Simple Interest.”

Compound Interest Sometimes it also happens that the borrower and the money lender agree to fix up a certain period, say quarterly or half- yearly or yearly, to resolve the former account.

In such cases, the sum after the initial part of the time becomes the principal for the second unit, the amount after the second unit becomes the principal for the third unit and so on. After a certain period, the difference between the amount and the money borrowed is called the Compound Interest for that period of time.

The formula of Simple Interest:

SI on Principal P at R% per annum for T years is denoted as: Simple Interest = (P*R*T)/100

Where, P=Principle, R=Rate(per annum), T=Total time

The formula for Compound Interest:

If Principal= Rs P, Time= t years and Rate= r% p.a., n=number of times the interest got compounded annualy. So the compound interest calculated annually will be: Amount after t years= P \left ( 1+\frac{r}{100n} \right )^{nt}

CI calculated half yearly: Rate= r% per half year and n= 2. Amount after t years= P \left ( 1+\frac{r}{100\times 2} \right )^{2t}

CI calculated Quarterly: Rate= r% per quarter; n= 4. Amount after t years= P \left ( 1+\frac{r}{100\times 4} \right )^{4t}