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Interest is the amount of money which is paid for the use of borrowed money.
Let a person '\(A\)' borrows some money from '\(B\)' for a certain period of fixed time at a fixed rate, then '\(A\)' will pay the borrowed money along with the additional money, which is called interest.
There are two types of interest:
- Simple interest
- Compound interest.
In this chapter, we are going to learn about Simple interest (\(I\)).
Before that, we should learn some basic terms deals with interest.
- Principal
- Amount
- Time
Principal:
The money borrowed or lend out for a certain period is called the "principal" or the "sum".
Amount:
The sum of the interest and principle is called as the amount.
Time:
The duration of the period for which the money is borrowed is called the time.
Rate Interest per Annum:
If interest is payable yearly for every \(100\) rupees, then it is called rate percent per annum.
Rate is denoted by \(r\), and rate percentage is denoted by .
Interest is generally given in percent for a period of \(1\) year per annum. Suppose the bank gives an amount of \(₹100\) at an interest rate of \(₹\)6, it is written as 6\(\%\) per year or per annum or in short 6\(\%\) p.a. (per annum).
It means on every \(₹100\) borrowed, \(₹\)6 is the required interest, to be paid for every one year.
Example:
Vijay takes a loan of \(₹\)20000 at 13\(\%\) per year as the rate of interest. Let us find the interest he has to pay at the end of \(1\) year.
Sum borrowed \(= ₹\)20000.
Rate of interest \(=\) 13\(\%\) per year.
This means if \(₹100\) is borrowed, he has to pay \(₹\)13 as interest. So, for the borrowed amount of \(₹\)20000, the interest for one year would be
\(= ₹\)2600.
So at the end of \(1\) year, he has to give an amount of \(= ₹\) \(= ₹\)22600.
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