Simple And Compound Interest Formula

An interest that is gathered or accumulated over a span of time with the respect of time given can be defined as compound interest formula. It is one of the ways through which we can calculate the transaction in a firm a company or an industry. The mathematical formula for the compound interest is given by, interest on principal given + compound interest at regular intervals. The regular intervals are as follows: annually or yearly, semi-annually, monthly, quarterly, and many other intervals. Various insurance companies and banks levy the compound interest. It is also one of the examples of exponential growth where the interest increases slowly and then rapidly increases. In this article, we shall cover some basic concepts of compound interest such as simple interest and some examples related to it.

What is Simple Interest?

A process or method of calculating the amount of interest that is charged on a sum with respect to the time given is known as the simple interest formula. The mathematical formula to calculate the simple interest is given by, p * r * t where p is the principal interest, r is the rate of interest in percentage and ‘t’ denotes the time taken. The principal interest or amount can be defined as the money borrowed by any money-giving firm such as a bank. The rate is the percentage of interest of the principal ( money borrowed ). Here, time denotes the duration of the principal amount taken. We may solve some examples related to the simple interest so that the concepts become clear to you.

Some Calculation Based on the Simple Interest Formula

As mentioned above, the mathematical formula to calculate the simple interest is given by, p * r * t where p is the principal interest, r is the rate of interest in percentage and ‘t’ denotes the time taken. Some of the examples are mentioned below:

Example 1: Find the simple interest if the principal amount given is 3000, the time period is equivalent to 1 year and the rate of interest is 10 percent?
Solution: Given that,
Amount of principal borrowed = 3000
Time period = 1 year.
Rate of interest = 10 percent.
Using the formula of simple interest = p * r * t
3000 * 1 * 10 / 100 = 300.
Now, for the amount after 1 year = 300 + 3000 = 3300.
Therefore, the simple interest after 1 year is equivalent to Rs 3300.

Example 2: Calculate the simple interest if the principal amount given is 5000, the time period is equivalent to 1 year and the rate of interest is 10 percent?
Solution: Given that,
Amount of principal borrowed = 5000
Time period = 1 year.
Rate of interest = 10 percent.
Using the formula of simple interest = p * r * t
5000 * 1 * 10 / 100 = 500.
Now, for the amount after 1 year = 500 + 5000 = 5500.
Therefore, the simple interest after 1 year is equivalent to Rs 5500.

Example 3: Calculate the simple interest if the principal amount is 3500, the time period is equivalent to 2 years and the rate of interest is 10 percent?
Solution: Given that,
Amount of principal borrowed = 5000
Time period = 2 year.
Rate of interest = 10 percent.
Using the formula of simple interest = p * r * t
3500 * 2 * 10 / 100 = 7000.
Now, for the amount after 1 year = 3500 + 7000 = 10500.
Therefore, the simple interest after 1 year is equivalent to Rs 10500.

Some Difference between Simple Interest And Compound Interest

The following points mentioned below analyze the difference between simple interest and compound interest:

● An interest that is gathered or accumulated over a span of time with the respect of time given can be defined as compound interest formula whereas the method of calculating the amount of interest that is charged on a sum with respect to the time given is known as the simple interest formula.

● The formula to calculate the compound interest is = interest on principal given + compound interest at regular intervals. The mathematical formula to calculate the simple interest is given by, p * r * t.
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