Jawahar Navodaya Vidyalaya Selection Test (JNVST)
Your gateway to quality education at Jawahar Navodaya Vidyalaya
Simple Interest: Understanding and calculating interest on principal amounts
🚀 Simple Interest is a way to calculate the extra money you earn or pay when you lend or borrow money. It's based on the original amount of money, called the principal, the rate of interest, and the time period for which the money is lent or borrowed. In India, this concept is often used in banks, post offices, and local money lenders.
Examples💡
Example 1: Rani deposits ₹1,000 in a bank at an interest rate of 5% per annum for 2 years. To find the simple interest, use the formula: Simple Interest = (Principal × Rate × Time) / 100. Here, Principal = ₹1,000, Rate = 5%, Time = 2 years. So, Simple Interest = (1000 × 5 × 2) / 100 = ₹100.
Example 2: Ravi borrows ₹2,000 from a friend at an interest rate of 3% per annum for 3 years. Using the formula, Simple Interest = (Principal × Rate × Time) / 100, we have Principal = ₹2,000, Rate = 3%, Time = 3 years. So, Simple Interest = (2000 × 3 × 3) / 100 = ₹180.
Example 3: A local shopkeeper lends ₹5,000 to a customer at an interest rate of 4% per annum for 1 year. The Simple Interest is calculated as follows: Simple Interest = (Principal × Rate × Time) / 100. Here, Principal = ₹5,000, Rate = 4%, Time = 1 year. So, Simple Interest = (5000 × 4 × 1) / 100 = ₹200.
Common Mistakes to Avoid⚠️
- Mistake: Forgetting to divide by 100 in the formula. Correction: Always remember to divide the product of Principal, Rate, and Time by 100 to get the correct interest.
- Mistake: Mixing up the units of time. Correction: Ensure that the time period is in years. If given in months, convert it to years by dividing by 12.
- Mistake: Using the wrong rate of interest. Correction: Double-check the rate of interest and ensure it is in percentage form before using it in the formula.