Question

What is the most common method of calculating interest?

Answer 1

Hint: Simple interest is a method to calculate the amount of interest charged on a sum at a given rate and a given period of time. In simple interest, the principal amount is always the same, unlike compound interest where we add the interest of the previous year's principal to calculate the interest of the next year. Simple interest is a quick and easy method of calculating interest on an amount .

Complete step-by-step answer:
We know two simple methods of calculating interest, one is simple interest and other is compound interest.
Simple interest is the most common and easy method of calculating interest.
Now we find the formula for finding simple interest.
If there is given principal P, rate of interest r and T as time then we get
Simple interest $ = \dfrac{{P \times r \times T}}{{100}} $
Usually time is calculated as the number of years and rate of interest in percentage.
Take an example of simple interest: we have principal $ 10000 $ , rate of interest $ 5\% $ and time $ 2 $ then find the simple interest.
Therefore simple interest
 $ = \dfrac{{10000 \times 5 \times 2}}{{100}} $
 $ = 100 \times 10 $
 $ = 1000 $
Simple interest is $ 1000 $ .

Note: Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one. i.e., $ CI = P[{(1 + R)^{nt}} - 1] $ , where P = initial amount, R = Annual rate of interest as a percentage.