This document defines key terms related to interest rates, including principal, interest, rate, and amount. It then explains the differences between simple interest and compound interest. Simple interest is calculated only on the original principal amount, while compound interest is calculated on the principal plus previously accumulated interest. The document provides formulas for calculating simple interest as interest=principal×rate×time, and compound interest as amount=principal×(1+rate/100)^time. It includes an example problem demonstrating the calculation of compound interest. Finally, it compares the growth of principal over three years under simple versus compound interest, showing that compound interest results in higher total interest paid.

2. Basic Terms Related to interest
• PRINCIPAL:- The money borrowed is called
the principal or sum.
• INTEREST :- The additional money paid by
the borrower is called the interest.
• RATE:- The interest on Rs100 for 1year is
known as the rate percent per annum.
• AMOUNT:-The total money paid by the
borrower to the lender is called the
amount. (A = P + I)

3. SIMPLE INTEREST
• 1) When you deposit
money into a savings at
a bank you expect the
bank to pay you for the
privilege of saving your
money with them. This
extra money is called
interest.
• 2) Interest is also paid
by a borrower to a
lender for the privilege
of using money.
• Definition :-If
interest is
calculated
uniformly on the
original principal
throughout the
loan period,it is
called simple
interest.

5. Annual interest rate
IMPLE INTEREST
FORMULA
Interest paid
Principal
(Amount of money
invested or
borrowed)
Time (in years)
100
I = PRT

6. PROBLEM SUMS
• Q1.Ratna’s father
obtained a loan of
Rs25000 from
HDFC bank to
renovate his house.
If the rate of
interest is 10% per
annum, what
amount will he
have to pay to the
bank after 2 years
to repay her dept?
• Given - P=Rs25000,R=10%p.a.
T=2years
• We know S.I = PRT/100
• S.I = 25000 x 10 X 2/100
• S.I= Rs.5000
• A = P + I=25000 + 5000
• Ans ;-Rs 30,000

7. COMPOUND
INTEREST

8. DEFINITION

9. COMPOUND INTEREST
FORMULA
amount at the
end
Principal
(amount at
start)
annual interest rate
n
r
PA 






100
1
time
(in years)

10. FORMULA FOR C.I.
• C.I. = AMOUNT - PRINCIPAL

11. PROBLEM ON C.I.

12. • =4.5 x 1331=5989.5
• Now C.I. = A - p
• =5989.5 – 4500 = Rs.1489.5

13. Difference between C.I & S.I
Mr.X has borrowed Rs.10,000 from a Lendor Y on 10 %
simple interest for 3 years & Mr.Z also borrowed same
amount from Z 0n 10% compound interest for 3years
lets check who is clever between X & Y.

14. YEAR 0n 10 % simple growth On 10% compound growth
Principal interest Principal growth
0 10,000 - 10,000 -
1 10,000 1000 11,000 1000
2 10,000 1000 12,100 1100
3 10,000 1000 12,310 1210
Return after 3
years to lendor
3000 3310

15. Graphical Comparison of C.I & S.I
0
200
400
600
800
1000
1200
1400
Simple Interest Compound Interest
After 1-year
After 2-year2
After 3-year3