Concept 1 · free preview
Simple interest basics
Understand
With simple interest (SI), interest is charged every year only on the original sum (the principal). So the interest is the same each year.
| Term | Meaning |
|---|---|
| Principal (P) | The original sum lent or deposited |
| Rate (R) | Interest on every ₹100 for one year (% per annum) |
| Time (T) | Time, in years |
| SI | Total interest |
| Amount (A) | P + SI — the total received at the end |
SI = P × R × T ÷ 100
Amount = P + SI
Example
SI on ₹4,000 at 6% per annum for 5 years = 4000 × 6 × 5 ÷ 100 = ₹1,200. Amount = 4000 + 1200 = ₹5,200.
Common mistake
If the question asks for ‘interest’, give SI; if it asks for ‘amount’, give P + SI. Both usually appear in the options.
Check yourself
What is the amount on ₹2,000 at 5% per annum simple interest after 3 years?
Answer: ₹2,300. (SI = 2000 × 5 × 3 ÷ 100 = 300)