Introduction To Simple And Compound Interest Formula

Introduction to Simple and compound interest formula:

In this article we are going to discuss simple and compound interest formula. The yearly proportion of the principal amount is represented as interest rate. The interest rate can be charged not only for year. It can be charged each month or each week or each six months. Occasionally the interest rate can be charged every day.

The interest rate can be classified into two types,

Simple interest rate

Compound interest rate

Simple and Compound Interest Formula Definition

Simple Interest Formula:

When interest are calculated using simple interest, they only calculate the interest separately with the Principal amount, Number of years and Rate of interest and it is add to the principal amount

SI [Interest] '= (P xx R xx T) / 100'

P [sum] '= (SI xx 100) / (R xx T)'

R [Rate/year] '=(SI xx 100) / (P xx T)'

T [Time] '=(SI xx 100) / (P xx R)'

where S.I. = Simple Interest,

P = Sum of amount or Principal ,

R = % Rate per annum,

T = Time Span

Compound interest Formula:

When interest are calculated using compound interest, they calculate interest for the whole mean period and it is add to principal and the resulted amount now serves as the principal for the next period of time. For the next period of time they calculate interest for the new principal and add it to the new principal and the resulted amount serves as the principal for the next period of time and so on.

Compound interest = 'A-P'

Where,

'"A=P (1+R/100) '

P=Principal amount

N=Period of time

R=Rate of the interest

Simple and Compound Interest Formula Example Problems:

Simple and compound interest formula example Problem 1:

Rey borrows $800 at 5% for 2 years from Cena .Find the total amount will Cena got after 2 years if he lends the money for simple interest or if he lends the money for compound interest.

Solution:

Here,

Principal amount P = $800

Period N = 2years

Interest rate R = 5%

Simple interest SI = PNR

'SI =800xx2xx5/100'

'=80'

' = 80$'

So cena got '"(800$ + 80$) ' '880$' if he lende the money for simple interest

Compound interest = 'A-P'

'A=P (1+R/100) ^N'

' A = 800( 1+5/100)^2'

'=800( 105/100 )^2'

' =800(21/20 )^2'

'=882$'

'CI = 882 -800'

'=82$'

So Cena got '(800$ + 82$) 882$ ' if he lends the money for compound interest

simple and compound interest formula example Problem 2:

Find the compound interest and simple interest on $250 for 3 years at 10% per annum.

Solution:

P = $250, r = 10%, n = 3 years

The formula is

Compound interest = 'A-P'

'A=P (1+R/100) ^N'

' A = 250( 1+10/100)^3'

'=250( 110/100 )^3'

' =250(11/10 )^3'

'=332.75$'

'CI = 332.75 -250'

'=82.75$'

Simple interest SI = PNR

'SI =250xx3xx10/100'

'=75'

' = 75$'

by: johnharmer

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