Calculation of Simple Interest and Compound Interest for JAIIB

Simple Interest Definition

Principals (P):

The original Sum of Money Loaned/deposited.

Interest (I):

The amount of money that you pay to borrow money or the amount of money that you earn on a deposit

Time (T):

The duration for which the money is borrowed/deposited.

Rate of Interest (R):

the percent of interest that you pay for money borrowed, or earn for money deposited.

Formula for Calculating S.I

Where
P= Principal
R- Rate of Interest (in %)
T = Time period.

Examples:

Question. What is the S.I on 7500/- at the rate of 10% per annum for 6 years

Solution: 

Question 2. A man borrowed Rs 15000/- at the rate 24% S.I and clear debt after 6 years, how much Rs. has to return.

Solution:

Compound Interest

Definition

Internal calculation on initial principal and also on the accumulated interest of previous periods of deposit or loan

Formula:

Formula for calculation of compound interest

For Example:

A took three years loan of Rs. 10000 at an interest rate of 5% that compound annually. What would be the compound interest?

Elaboration

Year	Opening Balance(P)	Interest (I) 5%	Closing Balance (P+I)
1.	10000	500	10,500.00
2.	10500	525	11025
3.	11025	551	11576

Compound Interest Payment can be made

• Monthly = 12
• Quarterly = 4
• Semi- annually= 2
• Annually = 1.

(It means I should be divided by no. of time it is compounded)

For Example:

Ram invested Rs. 2000 for 2 years at the rate of 5% that is compounded annually. What will be C.I?


Taking the same example compounded Monthly