1. Principal : The money borrowed or lent out for a certain period is called the principal or the SUM.
2. Interest : Extra money paid for using other’s money is called interest. Interest is the extra money paid by the borrower to the owner (lender) as a form of compensation for the use of the money borrowed.
3. Simple Interest (S.I.) : If the interest on a sum borrowed for a certain period is reckoned uniformly, then it is called Simple interest.
Simple Interest Equation (Principal + Interest)
A = P(1 + rt)
· A = Total Accrued Amount (principal + interest)
· P = Principal Amount
· I = Interest Amount
· r = Rate of Interest per year in decimal; r = R/100
· R = Rate of Interest per annum (p.a) as a percent; R = r * 100
· t = Time Period involved in months or years
From the base formula, A = P(1 + rt) derived from A = P + Iand I = Prt so A = P + I = P + Prt = P(1 + rt)
Let Principal = p, Rate = R% per annum (p.a) and Time = T years. Then.
(i) S.I = P*R*T/100
(ii) P = 100*S.I./R*T;
(iii) R = 100*S.I./P*T
(iv) T = 100*S.I. / P*R
Formula for calculating amount is A = P + I