Important formulas part 1 simple interest introduction. Jun 18, 2018 compute compound interest using the following formula. When you deposit money in a bank, the bank usually pays you for the use of your money. Apr 08, 2020 like simple interest, compound interest is charged on the principal. The amount of inr 4000 is the interest amount which has.
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. Compute compound interest using the following formula. We discuss the difference between simple interest and compound. Interest on a daily simple interest loan is calculated by using the daily simple interest method. Simple interest noncompounding interest examples and. Nov, 2019 find out the differences between simple and compound interest. Interest formulas mainly refer to the formulas of simple and compound interests. Prt, where p starting principal, r the annual rate, and t the number of years of accrual. The sum of the principal and interest is called the amount. Here are examples of how to use the simple interest formula to find one value as long as you know the others. Mar 04, 2018 today, we are going to discuss a very interesting topic simple and compound interest.
It explains how to calculate the interest earned over a period of time, how to calculate the annual. Simple interest is a type of fee that is charged or paid only on the amount borrowed or invested, and not on past interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Definition of compound interest compound interest is the addition of interest to the principal sum of a loan or deposit. Simple interest definition, example simple vs compound. Simple and compound interest definitions, explanations. In the compound interest formula, the principal is symbolized by a p, just as in the simple interest formula. The principal p is the amount borrowed or deposited. There are only a few major formulas to know to get better scores on these gmat simple and compound interest questions.
Simple interest and compound interest tricks pdf bankexamstoday. Simple interest is a calculation of interest that doesnt take into account the effect of compounding. It is a method for calculating the interest earned or paid on a certain balance in a. Simple interest important formulas aptitude questions and. First of all let us discuss the traditional method of solving simple interest question using the formula given below. They borrow from some people through savings accounts, etc. Learn how to calculate simple interest using the simple interest formula in this math video tutorial by marios math tutoring. For example, say a student obtains a simple interest loan.
This is different from compound interest, where interest is calculated on on the initial amount and on any interest earned. Simple interest noncompounding interest examples and formula. Simple and compound interest on the gmat veritas prep. Generally, simple interest paid or received over a certain period is a fixed percentage of the principal amount that was borrowed or lent. The interest calculated on the amount initially invested or loaned. Formulas and examples, simple and compound interest.
Simple interest is an easy method of calculating the interest for a loanprincipal amount. The following table gives the formulas for simple interest, compound interest, and continuously compounded interest. You should read all the information carefully and solve simple interest questions by using simple interest shortcut tricks. It is money paid by borrower for using the lenders money for a specified period of time. In the real world, your interestwhether youre paying it or earning itis usually calculated using slightly more complex methods. Normally, the borrower has to pay an extra amount in addition to the amount he had borrowed. Important formulaspart 1 simple interest introduction. Formulas for simple interest and compound interest problems. Simple interest is the rate at which we lend or borrow money. Cat aspirants are required to apply various formulas on simple interest and compound interest to solve various questions. Simple interest formula examples, solutions, videos.
In the following section, we will define the important terms and formulae that will help us solve and understand the questions on the simple interest. As you will see in the examples below, the simple interest formula can be used to calculate the. That is, to repay the loan, the borrower has to pay the sum borrowed and the interest. We will define the concept of simple interest and use these formulae and definitions to solve questions that we expect will come from. Simple interest formula with calculator finance formulas. The calculation of simple interest is equal to the principal amount multiplied by the interest rate, multiplied by the. Simple interest and compound interest formulas for cat pdf. In this post we have provided information about simple interest tricks. Compute the interest if the principal is 2,000,000 dollars at a rate of interest of 4% for a year.
We pay interest when we use other peoples money such as when we borrow from a bank or a friend. In many cases, interest compounds with each designated period of a loan, but in the case of simple interest, it does not. Jun 30, 2019 calculating simple interest or the amount of principal, the rate, or the time of a loan can seem confusing, but its really not that hard. However, understanding simple interest gives you a good start, and it can give you a general idea of what a loan will cost or what an investment. By the end of it, we shall be familiar with the basic formulas used for the calculation of simple and compound. Simple interest is when the interest on a loan or investment is calculated only on the amount initially invested or loaned. Interest is defined as the cost of borrowing money or the rate paid on a deposit to an investor. You can use the following simple interest calculator. Compound interest is the addition of interest to the principal sum of a loan or deposit.
Simple interest means that interest payments are not compounded the interest is applied to the principal only. The first formula is for simple interest earned during a time period t. Users may download the financial formulas in pdf format to use them offline to analyze mortgage, car loan, student loan, investments, insurance, retirement or. Interest is the fixed amount paid on borrowed money. Download and learn this formulas pdf will help you, as the most of the questions from this topic can be directly solved from this formulas. Try our simple interest calculator and compound interest calculator. February has 2829 days exact o actualactual uses exact days. Find out the differences between simple and compound interest. Compound interest is calculated based on the principal, interest rate, and the time period involved.
Let us consider the below example for a clearer understanding. Simple interest is generally used only on shortterm. A12 appendix b financial literacy lesson tutorials b. Interest interest discount simple compound simple compound at period when greater interest formulas o force of interest o the method of equated time the rule of 72 the time it takes an investment of 1 to double is given by date conventions recall knuckle memory device. Compounding is the effect of earning interest on the. Simple interest formula how to calculate simple interest. Formulas for simple interest and compound interest. I dollar amount of interest p principal r annual rate of interest t time in years simple interest formula banks provide a valuable service as money brokers. Like simple interest, compound interest is charged on the principal. This calculator for simple interestonly finds i, the simple interest where p is the principal amount of money to be invested at an interest rate r% per period for t number of time periods. The same formula can be used to calculate the principal sum, the interest rate, or the length of time, as the following examples show. Simple interest and compound interest shortcut tricks pdf. When interest is compounded, the principal amount grows faster than it would under simple interest. Simple interest is money earned or paid that does not have compounding.
Today, we are going to discuss a very interesting topic simple and compound interest. Simple interest provides a basic way of looking at interest. On this page, i explain the simple interest formula and provide a simple interest calculator that you can use to solve some basic problems. Users may download the financial formulas in pdf format to use them offline to analyze mortgage, car loan, student loan, investments, insurance, retirement or tax efficiently. Simple interest means earning or paying interest only the principal 1. But first you should learn the difference between compound and simple interest. I is one of the easiest topics in cat quantitative section. Calculating interest is a quick and easy task with the right forumlas or tools. By the end of it, we shall be familiar with the basic formulas used for the calculation of simple and compound interest and their practical applications. Basic finance formulas the complete list of basic finance formulas cheat sheet to know how to manually solve the calculations. For example, say a student obtains a simpleinterest loan.
Simple and compound interest formulas are very important as every year significant number of questions are asked in the ibps po banking exam every year. When you take out a loan from a bank, you have to pay the bank for the use of their money. Jul 23, 2017 the simple interest on a certain sum of money for 2 1 2 years at 12% per annum is rs. Apr 05, 2020 generally, simple interest paid or received over a certain period is a fixed percentage of the principal amount that was borrowed or lent.
Simple interest formula and examples mathbootcamps. Scroll down the page for more examples and solutions. Interest formulas for simple and compound interests with. In the compound interest formula, the principal is symbolized. The principal is the amount borrowed, the original amount invested, or the face value of a bond 2. I prt ip r t when solving financial mathematics problems, always specify all variables and their values. Solved examples with detailed answer description, explanation are given and it would be easy to understand. Interest is money paid or earned for the use of money. Copy and complete the second table that shows the balance after 10 years with interest that is compounded annually. This is the aptitude questions and answers section on simple interest important formulas with explanation for various interview, competitive examination and entrance test. Use this simple interest calculator to find a, the final investment value, using the simple interest formula. This math video tutorial explains how to use the simple interest formula to solve word problems. Now that you know how to find the interest rate, we can use the equation to calculate the amount of time it takes to earn a specific amount of interest. Unlike simple interest, which only accrues on the principal, compound interest accrues on both the principal and interest combined.
Compound interest is calculated using the starting principal and includes the interest accumulated. Simple interest is a concept which is used in most of the sectors such as banking, finance, automobile, and so on. In most cases, interest is calculated on a yearly basis, but the terms may vary among financial institutions. The simple interest on a certain sum of money for 2 1 2 years at 12% per annum is rs. Simple interest important formulas aptitude questions. But unlike simple interest, compound interest is added to the principal. This means that interest accrues on a daily basis on the amount of the loan current outstanding principal balance from the date the interest charges begin until you repay the loan. If the interest is calculated more than once per year, then it is called compound interest. Money is not free and it costs to borrow the money. Simple interest and compound interest shortcut tricks pdf download links are given at the end of the post. Prt, where p starting principal, r the annual rate, and t. Apr 02, 2020 simple interest provides a basic way of looking at interest. Calculating simple interest or the amount of principal, the rate, or the time of a loan can seem confusing, but its really not that hard. Jan 28, 2019 learn how to calculate simple interest using the simple interest formula in this math video tutorial by marios math tutoring.