Simple interest is a type of interest that is applied to the amount borrowed or invested for the entire duration of the loan, without taking any other factors into account, such as past interest (paid or charged) or any other financial considerations. Simple interest is generally applied to short-term loans, usually one year or less, that are administered by financial companies. The same applies to money invested for a similarly short period of time.
The simple interest rate is a ratio and is typically expressed as a percentage. It plays an important role in determining the amount of interest on a loan or investment. The amount of interest charged or earned depends on three important quantities that we will examine next. The formula is given below.
The Interest formula is given as,
INTEREST FORMULA PROBLEMS
The solved problems on interest formula are given below:
A sum of Rs 4000 is borrowed and the rate is 7%. What is the simple and compound interest for 2 years?
SimpleInterest=Principle∗Rate∗Time= 4000 × 7/100 × 2
Simple Interest = 560
The simple Interest for 2 years is Rs 560
Compound Interest = 4000 × 1.0064 – 4000
Compound Interest = 560
The compound interest for 2 years is Rs 560