Simple Interest & Compound Interest

Simple Interest: Simple interest is when the interest is charged on the principal sum only for a daily/weekly/monthly/yearly basis but not on the interest accumulated on the principal sum of money.

The formula for calculating Simple Interest:

Where:

SI = Simple interest

P = Principle or Sum

R = Rate of interest

T = Time

A = Amount

Some concepts:

Compound Interest: It is the addition of interest to the principal sum and then again earning interest on the principal sum along with previously earned interest.

The formula for calculating Compound Interest:

C.I. = Amount accumulated – Principal Sum

Here,

P = Principal Sum,

R% = Interest rate per year

t = Time period for the principal sum is invested

A = Amount generated after “t” time period

Note: It must be noted that the interest rate remains the same for the whole time period “t”.

Different cases of Compound Interest:

Case 1: There are some cases when the interest rate is different for different time periods. In that case,

Here, R1 = Interest rate per year for t1 time period & R2 = Interest rate per year for t2 time period

And so on. Also, Compound Interest (C.I.) is -

Case 2: When compound interest is compounded half-yearly (twice a year):

In this case, the Interest rate is divided by 2 and the time period is multiplied by 2. So,

Case 3: When compound interest is compounded quarter yearly (four times a year): In this case, the Interest rate is divided by 4, and the time period is multiplied by 4. So,