Page 122 - ICSE Math 8

11 Simple Interest and

Compound Interest

Key Concepts

• Simple Interest • Inverse Problems on Compound Interest
• Compound Interest • Appreciation
• Computation of Compound Interest Using Formulae • Depreciation

Interest is the amount paid or earned by a borrower or a lender. For example, if you borrow money from a
bank, then you have to pay the bank an extra amount which is more than the actual amount borrowed. This
extra amount that you are paying is called the interest.
On the other hand, you earn interest on your savings with the bank. Here, the bank pays you interest on the
money deposited in your account with the bank. The amount borrowed or lent is called the principal and the
percentage of the principal (extra amount) paid over a certain period of time is called interest.
There are two types of interest:
(a) Simple interest, and
(b) Compound interest

Simple Interest
Let’s revise the terms used in the previous class.
Principal (P) is the money borrowed or the money lent.
Interest (I) is the extra money paid for using the borrowed money. It is also known as simple interest.

Rate of interest (R) is the percentage at which interest is calculated.
Time (T) is the period for which money is borrowed. Time is always taken Maths Info
according to the rate of interest. If the rate of interest is in years, then time Rate of interest is the interest
should be in years and if the rate of interest is in months, then time should on every ` 100 for a fixed time
be in months. period.
Amount (A) is the sum of the principal and interest.
So, Amount (A) = Principal (P) + Interest (I), where

Principal × Rate of interest × Time
Interest = Since, Amount = P + I
100
P × R × T P × R × T RT
or, I = or, = P + = P 1 +
100 100 100
The formula for I yields three results:
100 × I 100 × I 100 × I
(i) P = (ii) R = (iii) T =
R × T P × T P × R
Example 1: Rohnit borrowed a sum of ` 46,500 for a period of 21 months at the rate of 13% per annum.
Find the interest to be paid by Rohnit.

21 7
Solution: T = 21 months = 12 years = years
4
P × R × T 46,500 × 13 × 7
I = 100 = ` 100 × 4 = ` 10,578.75

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