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Calculation of Interest

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Topics

  • Introduction
  • Important Terms
  • Formula: Simple Interest 
  • Calculation of Interest
  • Examples

Introduction

Interest: Banks pay interest to account holders for keeping money in the bank. Banks charge interest from people who borrow money (take a loan). The extra amount paid or received is called interest.

Principal: The term "Principal" refers to the initial deposit or borrowed amount.

Rate of Interest : The rate of interest is the percentage of the principal (original amount) that is paid or charged as interest for using the money.
The rate of interest is written as:
p.c.p.a. → per cent per annum

Time (T): It is the time for which the sum (principal) is borrowed or lent. 

Amount (A): It is the sum of the Principal and the Interest on it.
Amount = Principal + Interest, 
i.e., A = P + I 

Maharashtra State Board: Class 6

Simple Interest

Simple Interest: It is the extra money, which the lender gets from a borrower, in consideration of the sum (money borrowed) used by the borrower.

Important components of the interest formula:
The simple interest (S.I.) and the interest (I) mean the same, Principal (P), Rate of Interest (R), and Time Period (T)

Formula: 
S.I = `"Principal × Rate × Time" / "100"`
  I = `"P × R × T" / "100"`

Example

Anita takes a loan of Rs. 5,000 at 15% per year as the rate of interest. Find the interest she has to pay at the end of one year.

The sum borrowed = Rs. 5,000, Rate of interest = 15% per year.
This means if Rs. 100 is borrowed, she has to pay Rs. 15 as interest for one year.

If she has borrowed Rs. 5,000, then the interest she has to pay for one year.
= Rs. `15/100 × 5000 = Rs. 750.`

So, at the end of the year she has to give an amount of Rs. 5,000 + Rs. 750 = Rs. 5,750.

Example

If Manohar pays an interest of Rs. 750 for 2 years on a sum of Rs. 4,500, find the rate of interest.

I = `(P × T × R)/(100)`

750 = `(4500 × 2 × R)/(100)`

`(750)/(45 × 2) = R`

Therefore, Rate = `8 1/3 %`

Example

Vinita deposited Rs. 15000 in a bank for one year at an interest rate of 7 p.c. p.a. How much interest will she get at the end of the year?

Let us suppose that the interest on the principal of Rs. 15000 is x.

On principal Rs. 100, the interest is Rs. 7.

`x/(15000) = 7/100`

`x/(15000) xx 15000 = 7/100 xx 15000`.......(Multiplying both sides by 15000)

x = 1050
Vinita will get an interest of Rs. 1050.

Example

Vilasrao borrowed Rs. 20000 from a bank at a rate of 8 p.c.p.a. What is the amount he will return to the bank at the end of the year?

Let interest on principal 20000 rupees be x rupees.
Interest on principal 100 rupees is 8 rupees.

`x/(20000) = 8/100`

`x/(20000) xx 20000 = 8/100 xx 20000`.....(Multiplying both sides by 20000)

x = 16000

Amount to be returned to the bank = principal + interest
= 20000 + 1600
= Rs. 21600

Example

Sandeepbhau borrowed 120000 rupees from a bank for 4 years at the rate of `8 1/2` p.c.p.a. for his son’s education. What is the total amount he returned to the bank at the end of that period?

Principal = 120000, P = 120000, R = 8.5, T = 4

∴ Total interest = `(P xx R xx T)/100`

= `(120000 xx 8.5 xx 4)/100`

= `(120000 xx 85 xx 4)/(100 xx 10)`

= 120 × 85 × 4

= 40800

The total amount returned to the bank = 120000 + 40800 = 160800 rupees.

Example

A sum of ₹ 10,000 is borrowed at a rate of interest 15% per annum for 2 years. Find the simple interest on this sum and the amount to be paid at the end of 2 years.
On ₹ 100, the interest charged for 1 year is ₹ 15.
So, on ₹ 10,000, interest charged = `15/100 xx 10000` = ₹ 1500
Interest for 2 years = ₹ 1500 × 2 = ₹ 3000.
Amount to be paid at the end of 2 years = Principal + Interest
= 10000 + 3000
= ₹ 13000

Shaalaa.com | Concept of Principal, Interest, Amount, and Simple Interest

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