When we secure a loan from a bank, cooperative society, or an individual institution for a specified period, we remit an additional sum beyond the borrowed amount to compensate the lender for the use of their funds. This additional sum is referred to as Interest (I), the sum borrowed is designated as Principal (P), and the duration for which the money is borrowed is known as Time (t). The total sum, inclusive of both the principal and interest, repaid to the lender is termed the Amount (A or S).
In other words
Amount = Principal + Interest
A =P + I
The interest computed on the principal only (i. e. not on interest earned) for the entire period of borrowing is called Simple Interest.
Type-I
Some Important Formulae.
Where
A = Accumulated amount
[Final value of investment]
P = Principal. [Initial value of an investment]
r = Rate of interest
t = time (years.)
I = Amount if interest
Illustrative examples:
Example 1: How much interest will be earned on ₹ 2000 at 6% simple interest for 2 years.
Ans: I = Undefined control sequence \operatorname = ₹ 240
Example 2: Sarita deposited ₹ 50,000 in a bank for 2 years with the interest rate of 5.5% p.a. what will be the final value of Investment ?
Ans:
Calculator Tricks:-
rate for 2 years = 2 × 5.5 = 11% .
Amount = 50000 + 11% button = ₹ 55000
Example 3: Find the rate of interest if the amount owed after 6 months is ₹ 1050 borrowed amount being ₹ 1000.
(a) 5%
(b) 10%
(c) 15%
(d) None
Ans: (b)
SI = ₹(1050 – 1000) = ₹ 50
Tricks: Go by choices
For (b) A = 1000 + 1000 × rate of interest of 6 months
option (b) is correct
Calculator Tricks:- GBC
For option (b)
r = 10/2 = 5%
A = 1000 + 5% button (press) = 1050 (True)
Example 4: Kapil deposited some amount in a bank for years at the rate of 6% p.a. simple interest. Kapil received ₹ 1,01,500 at the end of the term. Compute initial deposit of Kapil.
(a) ₹ 70,000
(b) ₹ 60,000
(c) ₹ 80,000
(d) None
Ans: (a)
Tricks : Go by Choices
For option (a)
= 70,000 + [6 x 7.5]%
= ₹ 1,01,500 (True)
Option (a) is correct.
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1. What is the concept of simple interest? |
2. How is simple interest different from compound interest? |
3. How can simple interest be calculated? |
4. Can simple interest be negative? |
5. Is the concept of simple interest applicable to all types of loans and investments? |
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