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Simple interest is the interest given for a particular sum of money on a given rate. The sum of money is known as ‘principle’ and the interest is calculated for the given ‘rate’ for a given time.
For example, think that a person borrowed a sum of 50,000 rupees from a bank which provides an interest rate of 5% p.a. . He borrowed the money for 1 year, so what will be the amount he needs to pay at the end of this 1 year?
Well, the formula to calculate simple interest is :
(P*R*T)/100
Where
P= principle or amount of money
R= rate of interest; it is given in percentage and thus is divided by 100 while using in the formula
T= time until which the money is provided; it is calculated in year as the rate of interest is given as percentage per annum (where annum is the adverb of 1 year)
Going back to our question, we have:
P = 50,000
R= 5%
T= 1year
Thus interest (S.I.) = (50,000 * 5 * 1)/100
= 2,500 rupees
Thus the person has to return an extra 2500 rupees to the bank
The total amount to be returned = 50,000 + 2,500
= 52,500 rupees
I hope you found this helpful.