Interest is extra money paid for borrowing money.
If I gave Rs 10,000 to Sanjay for 1 year. I will take my
Rs 10,000….. and also some other money
(for letting him use my money for a period of time)
After one year,
Suppose I say, I give Rs 10,000 to Sanjay at 10% per annum interest How much amount does Sanjay have to pay after 1, 2, 3, 4, 5 years?
Interest = 10% per year
Interest will be on Principal
Interest for 1 year = 10% of Principal
= 10% × Principal
= 10% × 10,000
= 10/100 × 10,000
= 1/10 × 10,000
= 1,000
∴ Rs 1,000 interest is there after 1 year.
So, Total Amount = Principal + Interest
= 10,000 + 1,000
= 11,000
What about 2 years?
Interest for 2 years = 2 × Interest for 1 year
= 2 × 1000
= 2000
Let’s make a table
Year |
Principal |
Interest |
Amount |
1 ^{ st } year |
10,000 | 1000 | 11,000 |
2 ^{ nd } year |
10,000 |
2 × 1000 = 2000 |
12,000 |
3 ^{ rd } year |
10,000 |
3 × 1000 = 2000 |
13,000 |
4 ^{ th } year |
10,000 |
4 × 1000 = 2000 |
14,000 |
5 ^{ th } year |
10,000 |
5 × 1000 = 2000 |
15,000 |
So, Total amount = Principal + Interest
= 10,000 + 2,000
= 12,000
Suppose I have Rs 1,000 and I put it in the bank. What will be the amount I have after 1, 2, 3, 4, 5 years, if rate of interest is 5% p.a?
After 1 year,
Interest after 1st year = 5% of principal
= 5% of Rs 1000
= 5% × 1000
= 5/100 × 1000
= 5 × 10
= Rs 50
After 2 years,
Interest after 2nd year = 2 × Interest for 1st year
= 2 × Rs 50
= Rs 100
After 3 years,
Interest after 3rd year = 3 × Interest for 1st year
= 3 × Rs 50
= Rs 150
After 4 years,
Interest after 4th year = 4 × Interest for 1st year
= 4 × Rs 50
= Rs 200
After 5 years,
Interest after 5th year = 5 × Interest for 1st year
= 5 × Rs 50
= Rs 250
Year |
Principal |
Interest |
Amount |
1 ^{ st } year |
10,000 | Rs 50 | Rs 1050 |
2 ^{ nd } year |
10,000 |
RS 100 |
Rs 1100 |
3 ^{ rd } year |
10,000 |
Rs 150 |
Rs 1150 |
4 ^{ th } year |
10,000 |
Rs 200 |
Rs 1200 |
5 ^{ th } year |
10,000 |
Rs 250 |
Rs 1250 |
For finding Interest,
We use the formula
Simple Interest = (Principal × Rate × Time)/100
SI = PRT/100
For Rs 10,000 at 10% per annum. What will be the interest after 4 years?
P = Rs 10,000
R = 10%
T = 4
SI = (P × R × T)/100
= (10,000 × 10 × 4)/100
= 1000 × 4
= Rs 4000
So, Interest after 4 years is Rs 4000
Suppose I have Rs 1000 and I put it in the bank. What will be the amount I have after 5 years if Interest is 5% per annum?
P = Rs 1000
R = 5% p.a
T = 5 years
SI = (P × R × T)/100
= (10,000 × 10 × 5)/100
= 10 × 5 × 5
= 10 × 25
= Rs 250
Amount = P + SI
= 1000 + 250
= Rs 1250