Question

Rajesh borrowed a sum of Rs 2500 from Mahesh for three years. Mahesh agreed to give him the money on the condition that Rajesh has to give him simple interest at the rate of 12 % per annum. Find the simple interest earned by Mahesh and amount of money given by Rajesh at the end of three years.

Answer 1

Hint: This question is related to the topic of simple interest. Using the formulas of simple interest one can solve this question. The formulas are
Simple Interest = $\dfrac{PRT}{100}$
And
A = P + Simple Interest
Here P is called principle – the sum of money invested or borrowed initially.
R is called the rate of simple interest per annum. This rate gives the amount by which principle increases in 1 year. That means in 1 year, simple interest generated due to principle P is $\dfrac{PR}{100}$ .
T is called the time period during which the money has been invested or borrowed.
A is the amount which comes as a result of investment or borrow of the principle P for time period T.

Complete Step-by-step answer:
This question is a simple question totally based on the basic formula of compound interest. The formula gives the simple interest generated by borrowing some money at a given rate of interest for a given duration of time. The formula is
Simple Interest = $\dfrac{PRT}{100}\,\,\,\,\,\,\,\,\,\cdot \cdot \cdot \text{(i)}$
Here P is the money which has been borrowed.
In our question money borrowed is Rs 2500. So P = Rs 2500.
R is called rate of interest per annum charged.
In our question rate of interest is 12 %. So R = 12 %.
T is the time period (in years) for which money is borrowed. From our question T = 3 years.
Substituting P, R and T in equation (i), we get
$\begin{align}
  & \text{Simple Interest =}\dfrac{2500\cdot 12\cdot 3}{100} \\
 & \Rightarrow \text{Simple Interest}=900 \\
\end{align}$
We know that Amount = Principle + Simple Interest
Hence, Amount = 2500 + 900 = 3400
Hence Money earned by Mahesh is simple interest = Rs 900 and money Rajesh has to give in total after three years is Rs 3400.

Note: If the question rate is given in per quarter of a year then we have to change it in per annum before applying the formula. If we use the formula without changing it then our answer will come wrong. Also, the formula for interest, both simple and compound should be kept in mind but one should not confuse simple interest with compound interest.