Simple Interest and Compound Interest

Principal: The money borrowed or given for a certain period of time is called the principal.

Interest: Interest is the amount you pay to use other people's money.

Simple Interest: Simple interest is defined as the uniform amount of money used to repay on the amount borrowed for a given period of time.

The formula for simple interest is, 

                                                SI = (P*T*R)/100

Where, 

              P = Principle (Actual Money Borrowed),

              T = Time (in years), 

              R = Rate of interest (%) per annum,

              SI = Simple Interest.

We can calculate the total using the following formula:

                         Total = Principal + Interest

Here, the sum (A) is equal to the amount repaid at the end of the borrowing period (T).

So, Obviously, 

                            I = (P*T*R)/100

                            P = 100*I/T*R

                            T = 100*I/P*R

                            R = 100*I/P*T

Note: One ordinary year = 365 days

            Leap Year = 366 days

Compound Interest: Compound interest is defined as the interest calculated on the original and the interest accrued on the previous term.

        If interest is not paid to the lender for a period of one year or a certain period of time, the sum at the end of this period becomes principal for the next period. This process is repeated until the final amount is received.

1. Compound Interest formula, when the interest is compounded annually, 

                                    Amount (A) = P(1+R/100)ⁿ 

Where, 

              P = Principle (Actual Money Borrowed),

              n = Time (in years), 

              R = Rate of interest (%) per annum,

              A = Amount.

2. Compound Interest formula, when the interest is compounded Halfyearly,

 3. Compound Interest formula, when the interest is compounded quarterly,

4. Compound Interest formula, when the interest is compounded annually, but time is in fractions, i.e., 

the amount will be, 

5. Present worth of Rs. 'X' due 'n' years hence will be

6. When rates of interest are different for different years, say R1, R2, R3 ... for 1st, 2nd, 3rd .... years respectively. Then amount will be

Note: 

1) If the interest is payable half yearly, then time (n) is multiplied by 2 and rate (R) is divided by 2.

2) If the interest is payable quarterly, then time is multiplied by 4 and rate is divided by 4.