PUMPA - THE SMART LEARNING APP

Helps you to prepare for any school test or exam

Download now on Google PlayInterest is the amount of money that is paid for the use of borrowed money.

Let a person '\(A\)' borrows some money from '\(B\)' for a certain period of fixed time at a fixed rate, then '\(A\)' will pay the borrowed money along with the additional money, which is called interest.

There are two types of interest:

- Simple interest
- Compound interest.

In this chapter, we are going to learn about Simple interest (\(I\)). Before that, we should learn some basic terms deals with interest.

- Principal
- Amount
- Time

**Principal \((P)\)**:

The money borrowed or lend out for a certain period is called the "principal" or the "sum".

**Amount \((A)\)**:

- The sum of the interest and principal is called the amount.
- \(\text{Amount (A)} =\) \(\text{Principal (P)} +\) \(\text{Interest (I)}\).

**Time \((n)\)**:

The duration of the period for which the money is borrowed is called the time.

**Rate Interest per Annum \((r)\)**:

If interest is payable yearly for every \(100\) rupees, then it is called rate per cent per annum.

Rate is denoted by \((r)\), and rate percentage is denoted by $\frac{r}{100}=r\phantom{\rule{0.147em}{0ex}}\%$.

Interest is generally given in per cent for \(1\) year per annum. Suppose the bank gives an amount of \(₹100\) at an interest rate of \(₹\)6, it is written as 6\(\%\) per year or per annum or in short 6\(\%\) p.a. (per annum).

It means on every \(₹100\) borrowed, \(₹\)6 is the required interest to be paid for every one year.

Example:

Vijay takes a loan of \(₹\)50000 at 5\(\%\) per year as the rate of interest. Let us find the amount he has to pay at the end of \(1\) year.

Sum borrowed \(= ₹\)50000.

Rate of interest \(=\) 5\(\%\) per year.

This means if \(₹100\) is borrowed, he has to pay \(₹\)5 as interest. So, for the borrowed amount of \(₹\)50000, the interest for one year would be:

$\frac{5}{100}\times 50000$ \(= ₹\)2500.

So, at the end of \(1\) year, Vijay has to give an amount, which is the sum of principal and interest.

That is \(A = P + I = ₹\)$50000+2500$ \(= ₹\)52500.