Simple Interest Problems

Simple interest is the interest calculated on

the principal amount which is borrowed. While
learning how simple interest is calculated, the
main terms are principal denoted by P, rate of
interest denoted by R and time in years
denoted by T.

The branch of commercial mathematics has

one of the most important concepts, that is
interest. The two types of interest are simple
interest and compound interest. The idea of
simple interest is based on the time value of
money which has a current value, present
value and future value. If invested in a deposit,
earns an amount called interest. In this article,
we learn about simple interest, compound
interest and how to solve simple interest
problems.

Following example makes these terms more

clear. Malini said that she is going to buy a
new refrigerator. Her father asked whether
she had the money to buy it. She said her
father that she is planning to take a loan from
the bank. The money she borrows is the sum
borrowed or the principal. To keep this money
for some time, she needs to pay some extra
money to the bank. That amount is the
interest. So at the end of the year she has to
pay back the money borrowed and the
interest. This is the amount denoted by A.

Therefore, Amount = Principal + Interest.

Interest is given in percentage for a time of

one year. For example 12% per annum or 12%
p.a.

This means that for every 100 Rs you borrow,

you have to pay Rs. 12 as interest for one
year.

Example: Rajiv takes a loan of Rs. 7000 from a

bank at 10% as a rate of interest. Find the
interest he has to pay at the end of one year.

Solution: Here, sum borrowed, P = 7000

Rate of interest, R = 10%

This means if he borrowed Rs 100, he had to

pay Rs 10 as interest. So for Rs. 7000, the
interest he has to pay for one year is
7000×10/100 = Rs. 700.

So at the end of the year, the amount he has

to pay back = 7000 + 700 = Rs. 7700

Interest for multiple years:

If money is borrowed for multiple years, the

interest is calculated for the period of time it is
kept. For example, if Rajiv returns money at
the end of 2 years, he has to pay twice the
interest. Rs. 700 for the first year and Rs. 700
for the second year. As the number of years
increases, the interest to be paid also
increases. If Rs.100 is borrowed for 4 years at
5%, then the interest to be paid at the end of
4 years is 5 + 5 + 5 + 5 = 4 × 5 = 20.

So the interest paid for T years for a principal

P at the rate R% is S.I = PTR/100

How Simple Interest is different

from Compound Interest

The interest is calculated on the principal

amount for a fixed period of time, and the rate
of interest is called simple interest. It is used
for a single period.

The interest calculated at the end of a certain

fixed period and which adds to the principal
so that interest can be earned in the next
compounding period is called compound
interest.

SI and CI Formulas

Simple Interest

Amount = SI + P

Compound Interest

Amount at end of t years

where,

CI: Compound Interest

P: Principal

R: Rate of interest per annum

T: Time in years

A: Amount

SI: Simple Interest

Solved Examples

Example 1: Amount of Rs. 12800 was

invested by Mr Rohan dividing it into two
different investment schemes A and B at a
simple interest rate of 11% and 14%. What was
the amount in plan B if the amount of interest
earned in two years was Rs. 3508.

Solution:

Let the sum invested in Scheme A be Rs. x

and that in Scheme B be Rs. (12800 – x).

Then, [x . 14 . 2]/100 + [(12800 – x) . 11 .

2]/100 = 3508

28x – 22x = 350800 – (12800 × 22)

6x = 69200

x = 11533.33

So, sum invested in Scheme B = Rs. (12800 –

11533.33) = Rs. 1266.67.

Example 2: A lender claims to be lending at

simple interest, but he adds the interest every
6 months in the calculation of principal. The
rate of interest charged by him is 8%. What
will be the effective rate of interest?

Solution:

Let the sum be Rs. 100.

Then,

Simple interest for 1st 6 months = Rs. [100 × 8

× 1]/[100 × 2] = Rs. 4

Simple interest for last 6 months = Rs. [104 ×

8 × 1]/[100 × 2] = Rs.4.16

So, amount at the end of 1 year = Rs. (100 + 4

+ 4.16) = Rs. 108.16

Effective rate = (108.16 – 100) = 8.16%

Example 3: A town has a population of

20,000. The population increases by 10% per
year. What will be the population after 2
years?

Solution:

Here, R = 10/100

P = 20000

T=2

Population after 2 years will be = P[1 +

(R/100)]T

= 20000[1 + (10/100)]2

= 20000(1.1)2

= 24200

Example 4: The time required for a sum of

money to amount to five times itself at 16%
simple interest p.a. will be

Solution:

Let the sum of money be Rs. x and the time

required to amount to five times itself be t
years.

So, the interest in ‘tʼ year should be Rs. 4x.

In case of simple interest, we know,

(P × T × r)/100 = SI

Where, P = Principal amount, T = Duration in

years, i = Interest rate per year, SI = Total
simple interest

Then,

x × t × 16% = 4x

t × (16/100) = 4

t = 400/16 = 25

The required time = 25 years.

Example 5: The rate of simple interest per

annum at which a sum of money doubles itself
in 16⅔ years is:

Solution:

Let the principal amount be P.

Now the amount A after 16⅔ years is

doubled.

Hence amount is 2P.

I = P × R × T/100

Where,

P = principal amount

R = rate of interest

T = time in years = 162/3 = 50/3

I = simple interest

Amount A = I + P

According to question

A = P + (P × R × T/100)

2P = P + (P × R × T/100)

P = P × R × T/100

R = 100/T

R = 100 × 3/50

R = 6%

Example 6: In which year will the amount on a

sum of Rs. 800 at 20% compounded half-
yearly exceed Rs.1000?

Solution:

Let the time taken for this amount to reach

Rs.1000 be X.

The important thing to note is that this sum is

compounded half-yearly. Hence, we use the
formula:

Where, A= Amount,

P = Principal

r = interest rate

m = no. of periods within a year

T = no. of years

We need to obtain T such that the RHS should

be greater than the LHS:

In this case,

A = 1000

P = 800

r = 20%

m = 2 (since it is half-yearly)

Substituting these values, we have

1.25 < (1.21)T

Now, we need to use trial and error to check

for the values of T.

For T = 1, 1.25 > 1.21, hence the condition is

not satisfied.

For T = 2, 1.25 < 1.4641, hence the condition

is met.

Therefore, it is the second year in which the

amount would be greater than Rs.1000.

Example 7: In how many years will a sum of

Rs. 4,000 yield a simple interest of Rs. 1,440
at 12% per annum?

Solution:

We know that the formula for simple interest:

SI = [P × R × T] / 100

Where,

SI = Simple Interest = 1440

P = principal = 4000

T = Time = ?

R = Rate of Interest = 12%

Substituting the values in the formula

1440 = [4000 × 12 × T] / 100

1440 = 480T

T = 1440/480 = 3 yrs

Also read:

Quadratic equations

Linear equations

Frequently Asked Questions

What is the difference between simple

interest and compound interest?

Simple interest is based on the principal

amount of a loan. Compound interest is based
on the principal amount and the interest
which adds on it in every period.

Give the formula for simple interest.

Simple interest, I = PRT, where P is the

principal amount, R is the rate of interest, T is
the time in years.

How to find the amount, if principal

and simple interest is given?

We use the formula, amount = principal +

simple interest.