Comparing Quantities
Simple interest
Work out simple interest and the total amount, and find the rate or the time when the interest is known.
Money that is borrowed has to be paid back with something extra for the lender, and money that is saved earns something extra for the saver. That extra is called interest. The amount you start with is the principal, and the rate says how much interest 100 of it earns in one year.
The rule
Simple interest = principal × rate × time ÷ 100, with the time in years. 'Simple' means the interest is worked out on the original principal every year, and never on the interest already earned. The amount is the principal plus the interest, so do not stop one step early when a question asks for the total.
Worked example
Find the simple interest on ₹2000 at 5% per year for 3 years.
Find one year's interest: 5% of 2000 is 100.
Five per cent is a twentieth, and a twentieth of 2000 is 100. Getting one year first keeps the numbers small.
Try it together
Now let us do one together: ₹7500 at 4% per year for 3 years.
Same two steps as before, and then one more — because this time we will finish with the total amount as well.
1.Start with one year. What is 4% of 7500?
Have a go
Have a go on your own: find the simple interest on ₹900 at 10% per year for 2 years. Give just the number.
Hint: A tenth of 900, twice.
Ready to practise?
Eight questions on what you have just read. Nothing is timed, and you can play as many times as you like.