Understanding Simple Interest
Simple interest is a method to calculate the interest amount earned or paid on a principal sum of money over a specified time period at a fixed interest rate. The formula to compute simple interest is:
Simple Interest (SI) = Principal (P) × Rate (R) × Time (T) / 100
Where:
- Principal (P) is the initial amount of money.
- Rate (R) is the annual interest rate (in percentage).
- Time (T) is the duration the money is invested or borrowed (in years).
Given Values
- Principal (P) = 1200 rupees
- Rate (R) = 5% per annum
- Time (T) = 3 years
Calculating Simple Interest
Using the formula, we can substitute the given values:
- SI = 1200 × 5 × 3 / 100
Now, let's calculate it step-by-step:
1. Multiply the principal by the rate:
- 1200 × 5 = 6000
2. Multiply the result by the time period:
- 6000 × 3 = 18000
3. Divide by 100 to find the simple interest:
- 18000 / 100 = 180
Thus, the simple interest earned over 3 years is 180 rupees.
Conclusion
In summary, the simple interest on 1200 rupees at an interest rate of 5% per annum for 3 years amounts to 180 rupees. This method of interest calculation is straightforward and widely used, especially for short-term loans and investments.