Simple Interest Formula
Using the simple interest formula, one can calculate the percentage of the principal amount, charged by the lender or bank to the borrower for the use of its assets or money for a specific time period. In this section, we will be discussing the various aspects of the simple interest formula, and understand the variables involved.
What is the Simple Interest Formula?
Let's explore further and have a look at the formula which will help in solving problems related to simple interest. The simple interest for a given amount can be calculated by the following formula,
Simple Interest = (P×R×T)/100
where,
- P = Principal amount
- R = Rate of interest
- T = Time period
-
Example 1: What is the simple interest on the principal amount of $12000 in 2 years, if the interest rate is 12%?
Solution:
To find: Simple Interest after 2 years.
Principle amount = $12000, r = 12%, t = 2(given)
Using the simple interest formula,
SI = (P*R*T)/100
SI = (12000*12*2)/100
SI = 2880
Answer: Simple interest after the end of 2 years will be $2880.
-
Example 2: James borrowed $600 from the bank at some rate per annum and that amount becomes double in 2 years. Calculate the rate at which James borrowed the money.
Solution:
To find: Interest rate
Principle amount = $600, Amount = $1200, Time = 2 year(given)
Using the simple interest formula,
Simple interest = Amount - Principal
Simple interest = $1200- $600= $600
Again using the simple interest formula,
SI = (P*R*T)/100
600 = (600*R*2)/100
R = 50
Answer: James borrowed the money at 50% rate.