Interest is what you pay for the time you keep somebody else's money. Simple means the rent is charged only on the original sum.
The three things it depends on
All three are direct proportions, which is why they simply multiply together.
\[ I = \frac{P \times R \times T}{100} \]
| Symbol | Name | What it means |
|---|---|---|
| P | Principal | The sum lent or borrowed at the start |
| R | Rate | The percentage charged for each year |
| T | Time | How long, measured in YEARS |
| I | Interest | The rent paid, which is the extra money |
| A | Amount | Principal plus interest, the total handed back |
Nine months is 0.75 years. Putting 9 into the formula gives an answer twelve times too large.
Interest and amount are not the same
The interest is the extra money only; the amount is principal plus interest. Read the question to see which is being asked for.
To find the rate, R = 100I ÷ PT. Rather than memorising four versions, remember one and rearrange.
At 10 per cent, 1000 rupees earns exactly 100 every single year, including the tenth. The interest already earned never earns anything itself.
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