Simple Interest

Simple interest formula is one of the methods of calculating the interest on a certain amount. First, it is important to recall the concept of interest and ways to calculate it. When you borrow money from a bank, there is an extra amount to be along with the amount you borrowed. That extra money that you pay is called interest. Some money lenders and financial institutions also charge this interest for the money borrowed.

There are two types of interest levied upon:

1. Simple Interest, and
2. Compound Interest

It should be noted that the simple interest is paid at the end of a specific time period and is always a fixed amount that the borrower has to pay. The simple interest is calculated using a formula which is described below along with an example question.

Formula for Simple Interest

Simple interest is calculated by multiplying the interest rate by the principal amount and the time period which is generally in years. The S.I. formula is given as:

Simple Interest (SI) = P × T × R ⁄ 100

After the calculation for S.I. is done, the principal has to be added to it to get the total amount that the borrower has to give or the lender will collect. This is called total amount and its formula is given as:

A = P + S.I.

Notations in S.I. Formula:

S.I.	Simple Interest
P	Principal Amount
A	Total Amount
R	Rate of Interest
T	Time (in Years)

Using the above notations, the formula for S.I. becomes,

S.I.= Principal×Time×Rate100

This formula can be used to find the missing parameters while calculating the interest or total amount. Thus, the reduced forms of this formula are:

To calculate the Interest, the formula becomes:

I = PTR/100

To calculate the Principal Amount, the formula is:

P = (I × 100) / RT

To find the rate of interest, the formula will be:

R = (I × 100)/ PT

R (in decimal ) = I/PT

Thus, the rate of interest in percent is given by:

R = R * 100

To get the time, formula is:

T = (I × 100) / PR

All these formulas can be used based on the information provided in different scenarios.

Example Question Based on S.I. Formula

Question: Calculate the Simple Interest if the principal amount is Rs. 2000, the time period is 1 year and the rate is 10%. Also, calculate the total amount at the end of 1 year.

Solution:

According to the formula of simple interest we have,

S.I. = [(Principal (P) × Time (T) × Rate (r)) / 100]

So, from the above values,

S.I. = [(2000 × 1 × 10)] / 100

= 20000/100

=200

So, the simple interest at the end of 1 year will be Rs. 200.

For the amount after 1 year,

A = P + S.I.

So, A = 2000+200 = 2200

Hence, the total amount at the end of the given tenure (i.e. 1 year) will be Rs. 2200.