Calculation of Simple Interest

To find the sum required to earn a monthly interest of Rs.1200 at 18% per annum, we need to calculate the principal amount using the formula for simple interest:

Simple Interest (SI) = (Principal × Rate × Time) / 100

Step 1: Identify the given values
- Monthly interest = Rs.1200
- Annual interest rate = 18%

Step 2: Calculate the principal amount
Since the interest is given on a monthly basis, we need to convert the annual interest rate to a monthly rate by dividing it by 12.

Monthly interest rate = Annual interest rate / 12 = 18% / 12 = 1.5%

Using the formula for simple interest, we can rearrange it to calculate the principal:

Principal = (SI × 100) / (Rate × Time)
Principal = (1200 × 100) / (1.5 × 1)
Principal = 80,000

Therefore, the sum required to earn a monthly interest of Rs.1200 at 18% per annum is Rs.80,000.

Explanation of Simple Interest

Simple interest is a calculation used to determine the interest earned or paid on a principal amount over a specific period of time. It is commonly used in various financial transactions such as loans, investments, and savings accounts.

The formula for calculating simple interest is:

Simple Interest (SI) = (Principal × Rate × Time) / 100

- Principal: The initial amount of money on which interest is calculated.
- Rate: The percentage of interest applied to the principal amount.
- Time: The duration for which the interest is calculated, usually in years.

The formula states that the interest earned is directly proportional to the principal amount, the interest rate, and the time period. It does not take into account any compounding of interest.

Simple interest is straightforward to calculate and is commonly used for short-term investments or loans. It provides a clear understanding of the interest earned or paid over a given period without the complexity of compounding. However, it may not accurately reflect the true interest earned in scenarios where interest is compounded.

If we want 1200 interest per month
then per year =12(1200)=14,400
interest rate =18%
so amt required is 14,400(100/18)
=80,000