Principal: The money borrowed or lent out for a certain period is called the principal or the sum.
Interest: Extra money paid for using other's money is called interest.
Simple Interest (S.I.)
Let Principal = P, Rate = R% per annum (p.a.) and Time = T years. Then
- Simple Interest =
- P = ; R = and T =
Money is said to be lent on Compound Interest (C.I.) when at the end of a year or other fixed period the interest that has become due is not paid to the lender, but is added to the sum lent, and the amount thus obtained becomes the principal for the next period. The process is repeated until last period. The difference between the original principal and the final amount is called Compound Interest (C.A.).
For Compound Interest Amount A is calculated as below -Amount =
- When interest is compounded Half-yearly:
- When interest is compounded Quarterly:
- When interest is compounded Annually but time is in fraction, say years.
- When Rates are different for different years, say R1%, R2%, R3% for 1st, 2nd and 3rd year respectively.
- Present worth of Rs. x due n years hence is given by:
Difference between SI & CI
- There is no difference between CI and SI in one year.
- The difference between CI and SI in 2 years = SI of SI of 1 year = PR2/1002
- The difference for 3 years = PR2 (300 + R)/1003
- When Amount is given and principal is asked then Where A Amount..
- A certain sum was put at S.I. at a certain rate for T years.Had it been R1 % higher Rate it would have gave Rs a more then the sum =
- If S.I. on a sum of money of the pricipal and the number of years is equal to the rate percent per year then
|Rate||2 year C.I.||3 year C.I|