INTEREST

What is Interest  ?

Interest is amount of money which is taken by lender from borrower along with the given amount or money.

Example to understand interest :  

If Ramu take 500 rupees from Shyamu and after 5 month gives back 525 rupees than 525-500 = 25 is interest.

Formula for Simple Interest

Interest = Principle Amount * Rate * Time Period / 100
or,
    I = PRT/100

Question Answer to understand Simple Interest calculation in Loan

Question : Adam take 500 rupees as a loan for 5 year at the rate of 2% per year, what is interest?
Answer : given P = 500,  R = 2, T = 5, I = ?
put these value in formula we get,
I = 500*2*5/100
I = 50
Interest is 50 rupees and total amount to be paid after 5 year is principle plus interest which is 500+50 = 550

Formula for Compound Interest

A = P (1 + r/n) ^ nt

Where,
A is Amount (Principle plus Interest)
P is Principle
r is annual interest rate (decimal)
n is no. of times that interest is compounded per year
t is no. of years

Question Answer to understand Compound Interest calculation in Loan

Question : Rohan take 100 rupees as a loan for 3 year at the rate of 5% per year, what is compound interest?
Answer : given P = 100,  R = 5, T = 3, I = ?
put these value in formula we get,
A = 100(1+0.05/1)^1*3
A = 115.76
then Interest = Amount-Principle
I = 115.76 - 100 = 15.76
Interest is 15.76 rupees and total amount to be paid after 3 year is principle plus interest which is 115.76