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Compound Interest

We deposit money in a bank or Post office, they gave interest for the deposited money. Interest depends upon the amount, period of time and the interest rate.

Interest is the extra money paid by bank or post offices on money deposited with them. Interest is paid by people when they borrow money.

Simple Interest :-


A sum of Rs. 2000 borrow at a rate of interest 6% per annum for 2 years. Find the simple interest on this sum and amount to be paid at the end of 2 years.


On Rs.100 interest charged for 1 year is Rs. 6

On Rs. 2000, interest charged

Interest for 2 years = Rs. 120 × 2 = Rs. 240

Amount to be paid at the end of 2 years = Principal + Interest

                                                         = Rs. 2000 + 240 = Rs. 2240


Compound Interest :

The interest is calculated on the amount of the previous year. This is known as interest compounded or compound interest.

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