Posted on - 23-04-2017

Bank PO

Interest is money paid to the lender by the borrower for using the money for a specified period of time. Various terms and their general representation are as follows: .

(a) PRINCIPAL : The original sum borrowed = P

(b) TIME : Time for which money is borrowed = T. (T is expressed in number of periods, which is normally one year) .

(c) RATE OF INTEREST : Rate at which interest is calculated on the original sum = R

(d) AMOUNT : Sum of Principal and Interest = A

Wiien interest is calculated every year (or every time period) on the original principal, i.e., the sum at the beginning of first year, such interest is called Simple Interest. here, year after year, even though the interest gets accumulated and is due to the lender, this accumulated interest is not taken into account for the purpose of calculating interest for later years. .

Simple Interest = , where P,T,R are as explained above.

Total Amount A = P + , = P

In Compound Interest, the interest is added to the principal at the end of each period to arrive at the new principal for the next period. .

In other words, the amount at the end of first year (or period) will become the principal for the second year (or period); the amount at the end of second period becomes the principal for the third period and so on. .

If P denotes the principal at the beginning of year 1, then,

P at the beginning of year 2 = P

P at the beginning of year 3 = P

P at the beginning of year (n + 1) = P Compound interest = A - P

What is the simple interest on Rs.20000 at 18% p.a. for a period of two years?.

S.I. = where P is principal,

T is time period and

R is rate of interest. .

Here P = Rs.20000, T = 2 years and R = 18% p.a. .

\ S.I. = = Rs.7200

What sum of money will yield a simple interest of Rs.7200 in four years at 12% p.a.? .

S.I =

As S.I. = Rs.7200, we have 7200 =

&⇒ P = = Rs.15000

In how many years a sum becomes six times itself at 20% p.a. simple interest? .

Let the principal be Rs.P then Amount = Rs.6P .

So, interest = 6P - P = Rs.5P .

As S.I = , 5P =

T = 25 years. .

What sum of money amounts to Rs.5800 in three years at 15% p.a. simple interest? .

Amount = Principal + Interest

5800 = P +

5800 = P + 0.45P .

5800 = P(1 + 0.45) .

P = = Rs.4000

What is the compound interest on Rs.1400 at 20% p.a. for a period of two years compounded annually? .

A = P, where A is amount, P is principal, R is rate of interest and n is number of years.

Here P = Rs.1400, R = 20%, n = 2 years. .

A = 1400, A = 1400

A = = Rs.2016

Compound interest = 2016 - 1400 = Rs.616 .