Interest in Mathematics refers to the same thing that you get from banks for the amount deposited into your account. Calculation of Interest is required at many places such when you are taking a loan from the bank, trying to find your returns for deposit and many other places. There can be two types of Interest, Simple Interest and Compound Interest. However, when we say Interest, it usually means that we are talking about Simple Interest. Before we try to find out How to Solve Interest Problems, it is important to understand a few terms that will be used in the problems related to Interest.
There are three key terms that you will encounter in Interest Problems. These three terms are the rate of interest, principal and time. The rate of interest refers to the interest paid for every $100 in a year if the rate of interest calculated yearly. Suppose the rate of interest is 8% per annum, it simply means that you will get $8 as interest at the end of the year for every $100 that you deposited. The amount that you borrow or deposit on which the interest is calculated is called as Principal Amount or simply Principal. The last term is the time which refers to the time period for which the interest is to be calculated on the Principal.
Formula for Simple Interest
Suppose you want to calculate the interest for an amount P deposited into the bank for a period of t years and the bank is offering an interest rate of r% per annum. Here, the P is the Principal, t is the time and r is the rate of interest. Simple Interest can now be calculated by the following formula.
Simple Interest = (Principal * Rate * Time)/100 = P*r*t
Now that we know how to solve Interest Problems, let us take a simple example to illustrate how this formula will be used.
Problem: Alice deposited $2000 in his savings account for a period of two years with the bank offering an interest rate of 4% per annum. Calculate the Interest she will get at the end of 2 years.
Solution: In the given problem,
Principal = $2000
Rate of Interest = 4% per annum
Time = 2 years
Simple Interest = Principal * Rate * Time = (2000 * 4 *2)/100 = $160
In some other Interest Problems, you might be required to find out time or rate or interest or time. For all such problems, the same interest formula will be used.
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