 # Most important toipc for CS Foundation Simple Interest ## Most important topics for CS Foundation Simple Interest

• What is Interest?

Interest is the consideration paid by the borrower to the moneylender for the use of his money.

The concept of interest involves two persons:

Money Lender (who gives the money)

Borrower (who takes the money)

Some Related Terms:

1. Principal: It is the initial value of lending or the sum which is borrowed.
2. Rate of Interest:It is charged for the defined length of time for use of principal. Generally, it is charged on a yearly basis.
3. Amount:the final value of an investment. It is the sum total of the principal and interest earned.
4. Time: The period for which the money is used.
5. Interest: The extra amount charged by the money lender.

SIMPLE  INTEREST

It is the interest compounded on the principle for the entire period of borrowing.

No interest is paid on interest earned during the term of the loan.

Formula:

SI =     P*R*T/100

Or  SI = A – P

Where,

SI = Simple Interest

P  = Principal

R = Rate of Interest

T = Time period

A = Amount

Example: How much interest will be earned on Rs. 2000 at 6% simple interest for 2 years?

Solution : SI = P*R*T/100

= 2000*6*2/100

= Rs. 240

Time and Year Fractions

Interest can be calculated to be paid as half-yearly, quarterly, monthly or daily.

‘T’ needs to be entered as follows:

I = PRT/100 because the interest rate is in units of years.

Half Yearly : T= ½

Quarterly.   : T = ¼

Monthly.     : T= 1/12

Daily.            : T= 1/365

Example: Find the simple interest for Rs.600 invested at 8.5% for half-yearly.

Solution: I = P x R x T/100

I = 600 ×8.5×1/100×2

I =Rs. 25.50

Example : Find the Simple Interest When P = Rs.600, R = 5% per annum, T =         Quarterly.

Solution : I = P×R×T/100

I= 600×5×1/100×4

I = Rs.7.5

Example : Find the Simple Interest when P= 1000, R= 10% per annum, T= 2 months.

Solution: I = P×R×T/100

I = 1000×10×2/100×12

I = Rs.16.67

Example : Find the Simple Interest when P=500, R=12% per annum, T= 45 days.

Solution : I = P×R×T/100

I = 500×12×45/100×365

I = Rs. 7.40

Formula To Find Final Amount:

A = P + I

Or    A = P(1+ I*T)

Where,

A = Amount

P = Principal

I = Rate /100

T = Time

Example: Shweta deposited Rs. 40,000 in a bank for two years with the interest rate of 5.5% p.a. What will be the final value of the investment?

Solution: A = P (1 + I*T)

= Rs. 40,000 (1 + 5.5/100*2)

= Rs. 40,000 (1 + 11/100)

= Rs. 40,000*111/100

= Rs. 44,400

Example :  A sum of Rs. 13,500 amounts to Rs. 16,500 in 3years at the rate of simple interest. What is the rate of interest?

Solution: Interest = Amount – Principle

Interest = 16500 – 13500

Interest = 3000

R = I×100/P×T

R = 3000×100/12500×3

R = 8%

Example: A man took a loan from a bank at the rate of 12% p.a. simple interest. After 3 years he had to pay Rs. 5400 interest only for the period. The principal amount borrowed b him was?

Solution: P = I×100/R×T

P = 5400×100/12×3

P = 15000

Example: A person borrows Rs.5000 for 2 years at 4% p.a. simple interest. He immediately lends it to another person at 6.5% p.a for 2 years. Find his gain in the transaction per year.

Solution : The person borrows Rs. 5000 for 2 years at 4% p.a. simple interest

Simple interest that he needs to pay =

=

= Rs. 400

He also lends it at 6.5% p.a for 2 years

Simple interest that he gets =

=

= 650

His overall gain in 2 years = Rs.650 – Rs.400 = Rs.250

His overall gain in 1 year = 250/2 = Rs.125

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October 21, 2018

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