Beruflich Dokumente
Kultur Dokumente
INTEREST
Interest is money paid to the lender by the borrower for using his money for a specified period of
time.
(a) INTEREST
Interest is the money paid by borrower for using the lender’s money. It is denoted by ‘I’.
(b) PRINCIPAL
Principal is the original sum borrowed. It is denoted by ‘P’.
(c) TIME
Time here refers to the time for which money is borrowed and it is denoted by n. (n is expressed in
number of periods, which is normally one year).
(d) RATE OF INTEREST
Rate at which interest is calculated on the original sum. It is denoted by ‘r’ and is expressed as a
percentage or decimal fraction.
(e) AMOUNT
Amount is the sum of Principal and Interest and it is denoted by ‘A’.
𝑷𝑷𝑷𝑷𝑷𝑷
SI =
𝟏𝟏𝟏𝟏𝟏𝟏
where, P = principal
n = time period
r = rate of interest
𝑷𝑷𝑷𝑷𝑷𝑷
Total Amount, A = P +
𝟏𝟏𝟏𝟏𝟏𝟏
𝒏𝒏𝒏𝒏
= P �𝟏𝟏 + �
𝟏𝟏𝟏𝟏𝟏𝟏
In case of CI, the interest is added to the principal at the end of each period to arrive at the
new principal for the next period.
In easier words, the amount at the end of the first year/period will be the principal for the
second year/period and the amount at the end of the second year/period will be the
principal for the third year/period and so on.
𝒓𝒓 𝒏𝒏
A = P (𝟏𝟏 + )
𝟏𝟏𝟏𝟏𝟏𝟏
where, A = amount
P = principal
r = rate of interest for a period
n = time periods
In general, if compounding is done k times a year (i.e., once every 12/k months), at the rate
𝒓𝒓 𝒌𝒌𝒌𝒌
of r% per annum then in n years, the principal of P will amount to = P (𝟏𝟏 + )
𝒌𝒌.𝟏𝟏𝟏𝟏𝟏𝟏
¿ Calculate the SI and CI for first three years. Arrange them in tabular form and
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