Simple Interest and Compound Interest- QA Formulae

By BYJU'S CAT|Updated : July 4th, 2023

Principal:

The amount that is lent/deposited is called principal.

Interest:

The money that the principal generates is called interest. This is the money generated as a result of borrowing/lending.

Simple interest:

In simple interest, the principal and the interest (occurring every period) remain constant.

  • The sum of principal and interest is called the amount.

Amount (A) = Principal (P) + Interest (I)

  • The simple interest (I) accrued over a time period (T) for R% (rate of interest per annum) is given as follows:

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Compound interest:

In compound interest, the interest earned over a period is added over to the existing principal after every compounding period. So, the principal and the interest over a period changes after every compounding period. [In simple words, we can say that there will be interest on interest.]

  • The amount to be paid if money is borrowed at compound interest for N number of years is given as follows:

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Note: 

If the compounding period is not annual, then the rate of interest is divided in accordance with the compounding period. For example:

 

  •  If the interest is compounded half yearly or semi-annually, then the amount can be written as follows:

 

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And  if it is a leap year, then the amount can be written as follows:

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