MONEY MATHS

INTRODUCTION

PRINCIPAL, RATE OF
INTEREST, TIME PERIOD
Contents SIMPLE INTEREST AND
COMPOUND INTEREST

EXAMPLES

CONCLUSION
INTRODUCTION
 Money math deals with finding the interest
rates.
 An interest rate is the percentage a lender
charges on the amount of money borrowed
from them.
 Essentially, interest rates are the cost of
borrowing money.

MONEY MATHS 3
Principal Amount
A loan principal is the original amount of money borrowed from a lender and must be
repaid, along with interest and fees, during the loan period.

Rate of Interest
Interest rate is the amount charged by lenders to borrowers for the use of money,
expressed as a percentage of the principal, or original amount borrowed.

Time Period
A loan term refers to the length of time it takes for a loan to be completely paid off
when the borrower is making regular payments.

4
 TYPES OF INTERESTS
There are two main types of interests that can be applied to loans.

 Simple Interest
 Compound Interest

Simple Interest: Simple interest is a method to calculate the amount of interest charged on a sum at a given rate
and for a given period of time. In simple interest, the principal amount is always the same.

Formula for S.I = P x n x r

---------
100

Compound Interest: Compound interest refers to the interest earned on a loan or deposit amount, calculated
on both the initial principal and the accumulated interest from previous periods.

Formula for C.I = P ( 1 + r/100 ) n

MONEY MATHS 5
EXAMPLES
Rishi takes a loan of Rs 10000 from a bank for a period of 1 year. The rate of interest is 10% per
annum. Find the interest and the amount he has to pay at the end of a year.
Solution:

Here, the loan sum, P = Rs 10000

Rate of interest per year, r = 10%

Time for which it is borrowed, n = 1 year

Thus, simple interest for a year, SI = (P × n × r) / 100

= (10000 × 1 ×10 ) / 100 = Rs 1000

Amount that Rishi has to pay to the bank at the end of the year = Principal + Interest

= 10000 + 1000 = Rs 11,000

MONEY MATHS 6
What is the compound interest (CI) on Rs.5000 for 2 years at 10% per annum compounded
annually?
Solution:
Given,
o Principal amount = 5000 Rs
o No of Years = 2 years
o Rate of interest = 10%

Amount = P ( 1 + r/100 ) n
A = 5000 ( 1 + 10/100 ) 2
A = 5000 ( 110/100 ) 2
A = 5000 (110/100) x (110/100)
A = 5000 ( 11/10 ) x ( 11/10 )
A = 50 x 121
A = Rs. 6050

MONEY MATHS 7
CONCLUSION
 In conclusion, the concepts of simple interest and
compound interest play crucial roles in the world of
finance and investments.
 Simple interest provides a straightforward method for
calculating interest on a principal amount over a specific
period, making it easy to understand and apply in various
financial scenarios.
 On the other hand, compound interest, with its
compounding effect, leads to the growth of both the
principal and the accumulated interest, making it a
powerful tool for long-term investments.

MONEY MATHS 8
Thank you !