What is simple interest?
Simple interest is calculated only on the principal amount, or on that portion of the principal amount which remains unpaid. The formula for simple interest is: Simple Interest = (Principal × Rate × Time) / 100.
How is simple interest different from compound interest?
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and the accumulated interest of previous periods. This means compound interest grows at a faster rate than simple interest.
When is simple interest used?
Simple interest is typically used for short-term loans or investments, usually one year or less. It's also used in some types of bonds and certificates of deposit where interest is paid only on the principal amount.
What are the advantages of simple interest?
Simple interest is easier to calculate and understand than compound interest. It's beneficial for borrowers as they pay less interest over time compared to compound interest. It's also more predictable since the interest amount remains constant each year.
How do I calculate simple interest manually?
To calculate simple interest manually, use the formula: Simple Interest = (Principal × Rate × Time) / 100. For example, if you invest ₹100,000 at 8% annual interest for 5 years, the simple interest would be (100000 × 8 × 5) / 100 = ₹40,000.
What is the maturity value in simple interest?
The maturity value in simple interest is the total amount at the end of the investment period, which includes both the principal amount and the total interest earned. It's calculated as: Maturity Value = Principal + Simple Interest.