A simple interest is the type of interest where interest percentage is fixed and it is always calculated on the principal amount.
When someone deposits money in the bank, the bank provides interest on the money kept with the bank. There are two ways in which a bank calculates interest on the deposited money. The first is simple interest and the second is compound interest. The simple interest is calculated on the principal amount of the pre-decided interest rate.
So, basically, the simple interest can be calculated easily by taking out the percentage i.e., multiplying the percentage rate with the principal amount.
So, the formula to calculate simple interest is,
Simple Interest = P X T X R / 100
Where, P = Principal Amount
T = Number of years or time
R = Rate of Interest
After calculating the interest amount, to know the total amount, we can use the following formula,
A = P + SI
Where, A = Total Amount
P = Principal Amount
SI = Simple Interest
The concept of simple interest can be understood better with examples.
Examples:
1. Shravan invested 5000 Rs. with a simple interest rate of 5% for 2 years. Calculate the simple interest for two years and the total amount at the end of two years.
Given data: P = 5000, R = 5%, T = 2
For calculating simple interest,
Simple Interest = (P x T x R)/ 100 = (5000 x 2 x 5)/ 100 = 500 Rs.
For calculating total amount at the end of two years,
A = P + SI = 5000 + 500 = 5500
So, Shravan will have a total of 5500 Rs. at the end of two years.
2. Jay invested 10000 Rs for 5 years at simple interest. At the end of five years, he had a total amount of Rs. 15000. Find the rate of interest at which Jay had invested the money.
Given data: P = 10000, T = 5, A = 15000
We can get the interest amount by using the formula for the total amount.
A = P + SI
15000 = 10000 + SI
SI = 15000 – 10000
SI = 5000
Now, by putting SI = 5000 in the formula of simple interest, we can get the rate of interest.
Simple Interest = (P x T x R)/ 100
5000 = (10000 x 5 x R)/ 100
5000 x 100 = 50000 x R
R = 10%
Thus, Jay had invested the money at 10% simple interest.
