Simple Interest: Formulas, Tricks, Examples

Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds.

When money is borrowed, interest is typically paid to the lender as a percentage of the principal, the amount owed to the lender. The percentage of the principal that is paid as a fee over a certain period of time (typically one month or year) is called the interest rate. A bank deposit will earn interest because the bank is paying for the use of the deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in finance lease arrangements. The interest is calculated upon the value of the assets in the same manner as upon money.

If the interest is paid as it falls due, at the end of the decided period (yearly, half yearly or quarterly) the principal is said to be lent or borrowed at simple interest.

Quicker Method to solve the Questions

Simple Interest (SI)
=
Here P = principal, R = rate per annum, T = time in years
Therefore Amount (A)
=

If T is given in months, since rate is per annum, the time has to be converted into years, so the period in months has to be divided by 12. If T = 2 months this is years)