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# MEANING OF SIMPLE INTEREST

Simple interest is calculated by multiplying the daily interest rate by the principal, by the number of days that elapse between payments. Simple interest is a quick and easy method of calculating the interest charge on a loan. Simple interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments. It is used to work out gross amount that would accumulate at the end of given period, on the principal sum, at the given rate of simple interest. Here the interest is calculated every year on the principal amount only. No interest on the accumulated interest is taken into account.

(i) I = P x R x N

(ii) A = P + I = P + (P X R X N) = P x (1 + R x N )

‘I’ is the total interest amount accrued in given period.

‘P’ is the principle amount deposited.

‘R’ is the rate of interest adopted.

‘N’ is the period in number of years.

‘A’ is the Gross Amount including principal sum and total interest.

Example :

A principal amount of Rs 100 is deposited at 10% simple interest for 10 years period. Calculate the amount that will be accumulated at the end of the period at simple interest basis.

Solution :

I = P X R X N

= 100 X (10/100) X 10

= 100

A = P + 1

= 100 + 100

= 200

If Rs 100 is deposited for a period of 10 years at 10% simple rate of interest, the amount receivable at the end of 10 years will be Rs 200.

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