At the rate of 6% p.a. simple interest, a sum of Rs. 2500 will earn how much interest by the end of 5 years?
ANSWER
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Hint: Use the principal amount, rate per annum and the time period specified in the problem to calculate the simple interest using its formula. That much amount will be earned by sum of money or principal amount after the given time period.
Complete step by step answer: Given the problem, we need to find the amount of interest which a certain sum of money will earn at an interest rate of 6% per annum for 5 years. Let the sum or principal amount of money be Q which is equal to Rs. 2500 as per the problem. Let the time for application of interest on the given principal amount be T which is given as 5 years. The interest will be added on the principal amount in the form of simple interest at a rate of 6 % per annum as specified in the problem. We know that simple interest is given by ${\text{Simple Interest}} = \dfrac{{{\text{Q}} \times {\text{R}} \times {\text{T}}}}{{100}}{\text{ (1)}}$ Where Q denotes the principal amount, R denotes the rate of interest and T denotes the time period. It is given in the problem that the annual interest rate ${\text{R}} = 6{\text{ }}\% $. Using the values specified in the problem in the equation (1), we get \[{\text{Simple Interest}} = \dfrac{{{\text{Q}} \times {\text{R}} \times {\text{T}}}}{{100}} = \dfrac{{2500 \times 6 \times 5}}{{100}} = {\text{Rs}}{\text{. }}750\] Hence the interest earned by Sum of Rs. 2500 after 5 years at a rate of 6% per annum is Rs. 750. This much amount will be added to the sum amount after 5 years so that the total amount becomes equal to ${\text{Rs}}{\text{. }}2500 + {\text{Rs}}{\text{. }}750 = {\text{Rs}}{\text{. 3250}}$.
Note: Simple interest formula should be kept in mind while solving problems like above. It is important to note that the interest will not be double the principal amount as the interest gets added to the original amount to get the net sum of money. The rate should be used as the numerical value given in percent as the percent part is already defined in the formula used above. Simple interest is calculated on the principal, or original, amount. Compound interest is calculated on the principal amount and also on the accumulated interest of previous periods, and can thus be regarded as "interest on interest."