Question

What is the simple interest?

Answer 1

Hint: We first explain the concept of lending money and the formula which follows for returning that money. We explain the formula of $A=P+I=P\left( 1+\dfrac{nr}{100} \right)$ where principal amount be P, interest rate be r for yearly instalment, time be n years.

Complete step-by-step solution:
Simple Interest (S.I) is the method of calculating the interest amount for some principal amount of money. This extra money is paid to the lender at a certain fixed rate by the withholder.
We express the mathematical form of simple interest. Let the amount of borrowed money or the principal amount be P. The interest rate be r for yearly instalment. The time be “n” years.
Then we can say that the interest amount will be I where $I=\dfrac{Pnr}{100}$.
The total amount that has to be returned back will be A which is the addition of principal amount and interest amount.
So, $A=P+I=P+\dfrac{Pnr}{100}=P\left( 1+\dfrac{nr}{100} \right)$.
Let us take an example where we have a person who took a loan of Rs. 5000, at a rate of 10 p.a. for two years. Now we calculate the person’s interest for two years.
So, the interest amount will be I where $I=\dfrac{5000\times 10\times 2}{100}=1000$.
The total amount will be $5000+1000=6000$ Rs.

Note: Simple interest can be considered as two categories when the time is considered in terms of days. They are ordinary and exact simple interests. Ordinary simple interest is a SI that takes only 360 days as the equivalent number of days in a year. On the other hand, Exact simple interest is a SI that takes exact days in 365 for a normal year or 366 for a leap year.