Simple and Compound Interest Aptitude Formulas, Definitions, & Examples:

Overview:

What is Interest:

Interest is the amount charged by the lender for the use of the amount borrowed by the borrower, and the rate at which the interest is calculated known as rate of interest.

What is Principal Amount:

The initial amount used by anyone to purchase anything is known as principal amount.

Note: Remember, Amount is different from the principal amount. Amount is the sum of principal amount and interest.

Simple Interest:

If the rate of interest is same for a period of time on the same principal amount then it is called simple interest.$$ SI = \frac{P \times R \times T}{100} $$

Where, SI = Simple Interest

P = Principal Amount

R = Rate of Interest

T = Time period for which borrower has lent the money.

Example (1): A man borrowed Rs.50,000, from the bank at the rate of 10 % for 5 years, then find how much amount the man will have to pay as interest after 5 years?

Solution: Given values, P = Rs.50,000, R = 10 %, T = 5 years, then $$ SI = \frac{P \times R \times T}{100} $$ $$ SI = \frac{50000 \times 10 \times 5}{100} $$ $$ SI = \frac{2500000}{100} = Rs.25,000 \ (Answer) $$

Example (2): If a principal amount become double in \(5\) years, then find out the rate of interest on the amount?

Solution: Let the principal amount is \(x\), and the principal amount become double in five years hence simple interest may be also \(x\), then $$ SI = \frac{P \times R \times T}{100} $$ $$ x = \frac{x \times R \times 5}{100} $$ $$ R = \frac{100}{5} = 20 \ \% $$

Example (3): If the principal amount is \(x\), and the rate of interest is \(10 \ \%\), then how many years it will take the pricipal amount become double??

Solution: Given, The principal amount is \(x\), and the principal amount become double, hence simple interest may be also \(x\), then $$ SI = \frac{P \times R \times T}{100} $$ $$ x = \frac{x \times 10 \times T}{100} $$ $$ T = \frac{100}{10} = 10 \ Years $$