Simple Interest and Compound Interest – Quick Reference

Simple Interest (SI) when interest is calculated on the original principal every year (or every time period).
Principal (P) Original Sum Borrowed Rate (r) Annual rate of Interest in %age
Time (n) Time of the loan, in years Amount (A) Principal + Interest
𝑷𝒏𝒓
1. Simple Interest = 𝟏𝟎𝟎
𝑃𝑛𝑟 𝑛𝑟 𝑆𝐼 𝐴𝑚𝑜𝑢𝑛𝑡
2. Amount, A = P + SI = 𝑃 + = 𝑃(1 + ); Principal = or
100 100 𝑛𝑟 (1+𝑛𝑟)
𝑺𝑰
3. Rate of SI (rs) = 𝑷×𝒏 where r is in decimals
𝑺𝑰
4. Time of loan (n) = 𝑷×𝒓 where r is in decimals (If time is in months, divide it by 12 to get in years);

Compound Interest (CI)

In CI, interest is added to the principal at the end of each time period to arrive at the new Principal for the
next period. We need to consider ‘k’, the number of times interest compounded annually;

𝒓 𝐤𝐧 𝑘𝑛
 Total Amount, A = 𝑷 (𝟏 + 𝒌) ; If value Depreciates then Amount A = 𝑃 (1 − 𝑘𝑟 )

 If interest is compounded annually, then k=1, and Amount A = 𝑷(𝟏 + 𝒓)𝐧

𝟏
𝐀 𝐧
 Finding Rate of CI(r) when compounded annually (i.e., k=1): 𝐫=( ) −𝟏
𝐏
𝐀
𝐥𝐨𝐠( )
 Finding Number of years when compounded annually (i.e., k=1): 𝐧 = 𝐥𝐨𝐠(𝟏+𝐫)
𝐏

𝑟 kn
 Compound Interest = 𝐴𝑚𝑜𝑢𝑛𝑡 − 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 = 𝑃 (1 + 𝑘) −P
1 𝟏
𝑟 A kn 𝐀 𝐤𝐧
 Finding Rate of CI(r) when k>1 (1 + 𝑘) = (P) 𝐫 = [(𝐏 ) − 𝟏] × 𝐤

A 𝐀
log( ) 𝐥𝐨𝐠( )
 Finding Number of years when k>1 𝑘n = P
𝑟 𝐧=[ 𝐏
𝑟 ]÷𝐤
log(1+ ) 𝐥𝐨𝐠(1+ )
𝑘 𝑘

Problems involving Simple and Compound Interest

In CI, if the time is not in multiples of compounding period, then calculate CI only for complete compounding
period; Use the Amount, to calculate Simple interest for the remaining time. For e.g., when interest is
1 𝟏
compounded annually, but time being a fraction of a year say 5 then Amount = 𝑷(𝟏 + 𝒓)𝟓 × [𝟏 + 𝐫]
4 𝟒

If the interest earned in a year (n=1) is same in CI and SI and k>1 (compounded multiple times in a
year), then knowing the rate of interest of one, we can find the other. In general, rc < rs
𝒓 𝐤 𝒓 𝐤
(𝟏 + 𝒌𝒄) = 𝟏 + 𝒓𝒔 so 𝒓𝒔 = (𝟏 + 𝒌𝒄) − 𝟏
𝟏
Also 𝒓𝒄 = ( 𝐤√𝟏 + 𝒓𝒔 − 𝟏)𝐤 = ((𝟏 + 𝒓𝒔 )𝐤 − 𝟏) 𝐤

Difference between CI (compounded annually) and SI = 𝑪𝑰 − 𝑺𝑰 = 𝑷[(𝟏 + 𝒓)𝒏 − (𝟏 + 𝒏𝒓)]

If n=2 years, then difference between CI (annual) and SI = 𝑪𝑰 − 𝑺𝑰 = 𝑷(𝒓)𝟐 ;