In this post, we’re going to talk about an important concept for exams as well as use day-to-day life i.e Simple interest.

But before discussing this, let me tell you what is Interest

## What is Interest?

We all use money to buy anything, but what happens, When I don’t have sufficient money? and I have to buy anything which costs more amount than my deposit money. Definitely, I’ll ask another person for money. If that person is your friend, then he’ll definitely provide money without taking anything. But, if you go to a bank or moneylender, they will give you money, but not free of cost, they are going to charge some amount for that money.

So, the extra money which you pay with previous money after some time is called** Interest.**

There are some more terms which are important to know in Interest

**Principle: **Principle is the amount of money that you borrowed or lent out for a certain period of time. For example, You took 1000 $ from the bank as a loan, then 1000$ is known as Principle

**Rate: **When you took money from a bank or moneylender , he adds extra money with time in the principle at some percentage. It is known as Rate

For example, You took a loan of 1000$ from Bank, then the bank charges Interest at some rate, suppose it is 10 % per year . Then, at the end of the year, you have to pay 100$ more money with the 1000$,i.e 1100$

This Rate can be charged every quadrant, half-yearly, annually, and even daily, it depends on the owner of Money.

**Amount: **The sum of principal and Interest after a specified time, is called Amount. You can see in the above examples, we have

Principle=1000$

Interest=100$

Amount=1100$

**Time: **The Period for which Money is borrowed is called Time.

Check this as well

Linear equation in one variable for class 8

rational number notes for class 8

## Simple Interest

As You studied above, When we borrow any money from a bank or moneylender, we have to pay some extra cost for that money which is known as Interest. Now, This Interest is decided in two ways i.e Simple interest and Compound Interest.

In this post, we’ll discuss only Simple interest in detail. Compound Interest in Upcoming Post …..

**What is Simple Interest? **

When money is borrowed on simple interest, then the Interest is calculated uniformly on the original principal throughout the loan period. But in the case of Compound Interest, This Calculation is not Uniformed, it varies with time.

**The formula for Simple Interest:**

Simple Interest(SI) =\frac{P×R×T}{100}

Let take an Example to Understand this concept clearly,

Example: Varun Deposits 3000 Rs in a bank for a period of 2 yr . If the bank gives an interest of 5% per annum,find the amount Varun would get back at the end of 2 yr.

**Solution : **

According to Question,

Principal (P)= 3000 Rs

Rate (R)=5%

Time(T)=2yr

So, Simple Interest(SI) =\frac{P×R×T}{100}

Simple Interest(SI) =\frac{3000×5×2}{100}=300Rs

Amount =Principle+Interest=3000+300=3300Rs

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