**SIMPLE INTEREST COMPOUND INTEREST**

**Interest**

Interest is the ‘extra’ money
paid by the borrower to the lender for using the money for a specified

period of time.

**Principal (P) : -**The money lent or borrowed is called the Principal.

**Amount (A) : -**The total money, i.e. Principal + Interest is called the amount.

**Rate of interest (r) :-**The rate at which interest is calculated on the Principal is called the rate of interest.

**Interest is of two kinds**

**1. Simple interest (I)**

If the interest is calculated for
every time period (generally calculated yearly, half-yearly, quarter-yearly)
only on the original sum (Principal) borrowed, then such interest is called as
the simple interest.

The interest is same for each qf
the time-periods.

i.e. if the interest for one
time-period (if taken as a year) is I, then the interest for ‘n’
time-periods(years) is ‘nI’

**2. Compound interest**

In this method, at the end of
each time period, the interest is added to the principal, and this amount
becomes the new Principal for/the next time period. The amount at the end of
the second time period becomes the Principal for the third time period and so
on.

The interest is not same for all
the time-periods, but the interest for any time period is greater than the
interest for the preceeding time-period. Compound interest (CI) = Final
amount -
initial principal

To Exercise some more problems on SI and CI visit

*here*
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