The Amount of money paid yearly or half yearly, or for any period, at a specified rate in terms of percentage, on a borrowed money is called Capital or Principal. The rate is called interest rate and the sum of the principal and the interest after a certain period is called amount. This is Simple interest.

Formula : Interest = Principal times rate times period

I = P r t

Example How much simple interest will account for 7 years if $5000 is invested at 10% interest per year.

Solution : You are asked to find "simple interest"

Now from the use of the equation,

I = Prt ,

we get on substituting,

P = $5000, r = 8 % and t = 7 years

I = 5000 (0.08) ´ 7

I = $ 2800

Example If the difference between the simple interest, calculated on the investment of $400 for 5 years and 9 years

respectively, is $112. Find the annual rate of Interest.

Solution : We have principal = $400

Periods are 5 years and 7 years respectively.

Using I = P r t ,

I₁ = 400 ´ ( r ) ´ 5

= $ 2000r

I₂ = 400 ´ ( r) ´ 7

= $ 2800r

Given that I₂ - I₁ = $ 112

\ 2800r - 2000r = 112

\ 800r = 112

\ r = %

Therefore, the rate of interest is 14% per year.

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Index

9.1 - Definition and Solving Techniques
9.2 - Use of Simultaneous Linear Equations

Chapter 1