Simple Interest & Compound Interest

Interest Formulas

Interest

➥Interest is the fixed amount paid on borrowed money.

➥The sum lent is called the principal.

➥The sum of the principal and interest is called the amount.

➥Interest is of two kinds:

1. Simple interest
2. Compound interest

Simple Interest (SI)

SI = (P × R × T) / 100

where:

• P = Principal amount (initial sum of money)
• R = Rate of interest per year (in percentage)
• T = Time period (in years)

Compound Interest (CI)

A = P (1 + R / 100)^T

where:

• A = Amount after time T
• P = Principal amount (initial sum of money)
• R = Annual interest rate (in percentage)
• T = Time period (in years)

The compound interest CI is then:

CI = A - P

For Compound Interest Compounded More Frequently:

A = P (1 + R / n × 100)^{n × T}

where:

• n = Number of times interest is compounded per year

The compound interest CI remains:

CI = A - P