26. Simple interest, Compound interest.
26. Simple interest, Compound interest. |
Learn and Remember :
Principal : The money borrowed from or deposited in a bank or credit society is called principal.
Period : The time for which the money is borrowed or deposited is called the period.
Rate : The rate of interest is the amount of money charged per cent (for every 100) per
annum (for every year).
8 per cent per annum is written in short as 8 p.c.p.a. 8 p.c.p.a. means interest on 100 for 1 year is Rs 8.
Simple Interest : The assessment of interest yearly without adding it to the principal is called simple interest.
Simple interest : I = P ×N× R ⁄ 100
Amount = Principal + Interest A=P +I.
P: Principal; N : Period; R: Rate of interest; A : Amount.
Compount interest : The assessment in which interest is calculated on interest of previous periods is called compound interest.
Compount interest : C.I. =P (1+R ⁄ 100)n
Amount : A=P (1+R ⁄ 100)n
The formula for C.I. is used to calculate the increase or decrease in population, depreciation in machinery and vehicles. In such cases,
- if the value increases, the rate of interest becomes positive and A=(p +R ⁄ 100)n
- if the value decreases, the rate of interest becomes negative and A= (p +-R ⁄ 100)n
⇒ When the principal and the rate of interest remain the same, the interest increases as many times as the period.
⇒The ratio of the interests for the same period is equal to the ratio of the products of the principal and rate of interest.
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