Lesson Interest rate calculation for simple interest

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This Lesson (Interest rate calculation for simple interest) was created by by Shruti_Mishra(0)

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About Shruti_Mishra: I am a maths graduate from India and am currently persuing masters in Operations Research.

Simple Interest

<a href="simple_interest.wikipedia">Simple Interest</A> is the money charged on the fixed amount by the lender for lending the money to the borrower for the certain period of time. The <a href="interest_rate.lesson">interest</A> charged in case of simple interest remains fixed for all the year.

The formulae for <a href="simple_interest.wikipedia">Simple interest</A> is 
<center> Interest = (Principal * Time * Rate) / 100
 Amount = Principal + Simple Interest
</center>

Example: &lsquo;A&rsquo; borrows $10,000 for 3 years at 10% simple annual interest. 
In this example the money which is borrowed is principal ($10,000), time period is 3 years and the rate of interest charged is 10%
<table border="1" cellspacing="0" cellpadding="0" width="572" align=center>
 <tr>
 <td valign="top"> 
 Year </td>
 <td valign="top">Principal</td>
 <td valign="top">Interest</td>
 </tr>
 <tr>
 <td valign="top">1&nbsp; </td>
 <td valign="top">10000</td>
 <td valign="top">0.1 * 10000 = 1000</td>
 </tr>
 <tr>
 <td valign="top">2 </td>
 <td valign="top">10000 </td>
 <td valign="top">0.1 * 10000 = 1000</td>
 </tr>
 <tr>
 <td valign="top">3</td>
 <td valign="top">10000</td>
 <td valign="top">0.1 * 10000 = 1000</td>
 </tr>
</table>
In the above case for all the years the principal remains the same for all the three years and so on. For the three years the total interest will thus be 1000 + 1000 + 1000 = 3000

Same result can be obtained by directly applying the formula 
 Interest = 10000 * .10 * 3 = 3000 
 Amount = 10000 + 3000 = 13000

If money is kept at <a href="simple_interest.wikipedia">Simple Interest</A> it doubles itself in 5 yrs so in how much time it will become 4 times.

If we have Rs 100 in the beginning and it becomes Rs 200 in  5 yrs, Rs 100 is earned in 5 yrs. Since simple interest remains the same for  all the year i.e.20 is earned every year. Now the money has to become 400 and  300 is to be earned as an interest, which will take 300/20 = 15 yrs.

By Formula: 
 Interest = Principal * Rate * Time
=> P = P * R * 5
=> R = 1/5 = 0.2 = 20% p.a.

Thus for amount to become 4 times, we would need interest = 3 times principal 
 3*P = P* 0.2 * T
=> T = 3/0.2 = 15 yrs

Also see: 
Lessons:
<a href="interest_rate.lesson">Basics of Interest Rates and its uses</A>
<a href="compound_interest2.lesson">Compound Interest</A>

Solvers:
<A href="simple_interest.solver">
Calculate Simple Interest, given Principal, Time and Interest Rate </A>
<A href="calc_SimpleInterestRate.solver">
Calculate Interest Rate, given Principal, Simple Interest and Time</A>