Before jumping to this topic, you must make sure that you know how to handle percentages and calculate the values for various fractions and numbers in terms of percentage. Once done, this topic is really like its name. Simple.
The most common scenario in simple interest is the percentage of return on the principal investment (the amount that is invested in the bank or any other financial institution, in terms of a fixed deposit).
The important thing to be noted about simple interest is that in this calculation, the principal (initial investment value) does not change. In other cases, it changes at regular intervals or continuously. Now let us get familiar with the terms that are being used in this formula for calculation of simple interest.
$$\text {P = Principal (initial) investment} \newline \text {r = rate of interest} \newline \text {n = period of investment, or simply number of years} \newline \text {A = Total amount after completion of the period} \newline \text {I = Simple Interest}$$
Let us examine a numerical problem that will help you to understand this concept.
Q. Suppose you have INR 100,000 in your fixed deposit scheme. You have invested it for 5 years and it yields an interest of 10% per annum (i.e. every year, 10% of initial investment will be transferred into the account of the investor). Calulate the total interest that will be transferred into the account of the customer.
A. Let us define the values and the variables.
$$\text {P = INR 100,000} \newline \text {r = 10%} \newline \text {n = 5 years} \newline \text {A = Total amount after completion of the period}$$
$$ Interest = \frac{P \times r \times n}{100} $$
$$ Interest = \frac{100,000 \times 10 \times 5}{100} \newline Hence,\space Interest = 50,000 \newline Hence,\space Amount = 100000 + 50000 = 150000$$
Most of the numericals that come in this type are either very straightforward, or they are slightly different, and we can solve them using the conditions given in the problem. When all data is not given and we have to find one of the values for principal, time, or rate of interest, we convert this formula into a one-variable equation and solve it to find the value asked in the problem.
By mastering this concept, you gain more than just the ability to calculate interest on a loan or a short-term investment; you gain a fundamental lens through which to view financial responsibility.
By learning this and other concepts like compound interest, profit and loss, and other concepts involving percentage and exponents, one can proceed towards planning their finances from a very young age and secure their money against the threat of ambiguity in the terms of financial institutions, which ensures not just survival but also financial growth over time. Practice, because it gets easier after practicing enough, and be financially responsible at all times.
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