Most people are used to spending what they earn on housing, food, education, clothing and entertainment. Sometimes, extra expenditure have also to be met with.

Some people are wise as they manage to put aside some money for such expected and unexpected expenditures. But, most people have to borrow money for such contingencies. They promise to return it after a specified period or time. At the end of the time, we have to not only pay the money which we have borrowed but also, we have to pay some additional money for using the lender's money.

The money borrowed is called Principal. The additional money we pay back is called Interest. The total amount which is payed back to the lender at the end of the specified period is called Amount.

Therefore,
AMOUNT = PRINCIPAL + INTEREST

## What is Simple Interest?

Interest is the fee paid by a borrower to the lender in loan transactions as the consideration for keeping the money. Annually a fixed percentage of the amount involved in the transaction is calculated as Simple Interest.

Let us look at few examples to know what is simple interest.

### Examples on Simple Interest

Given below are some of the examples on Simple Interest

Example 1:

Lets take 500 dollars for an interest of 6% per annum for 3 years. Find the total amount paid by the end of three years.

Solution:

The phrase "rate of 6% per annum" means we have to pay 6 dollars for keeping 100 dollars for one year.
Interest on 100 dollars for 1 year = 6 dollars

Interest on 1 dollar for 1 year = $\frac{6}{100}$

Interest on 1 dollar for 3 years = $\frac{6 \times 3}{100}$

Interest on 500 dollars for 3 years = $\frac{500 \times 6 \times 3}{100}$

= 90 dollars

Hence, the total amount = principal + interest
= (500 + 90) dollars
= 590 dollars

Example 2:
Find the interest on 500 dollars for a period of 4 years at the rate of 8% per annum. Also, find the amount to be paid at the end of the period.

Solution:
Rate of interest = 8% per annum
It means interest on 100 dollars for 1 year = 8 dollars

Therefore,
Interest on 100 dollars for 4 years = $8 \times 4$
= 32 dollars
Hence,
Interest on 1 dollar for 4 years = $\frac{32}{100}$

So, interest on 500 dollars for 4 years = $\frac{32 \times 500}{100}$

= 160 dollars
Now,
Amount = principal + interest
= (500 + 160) dollars
= 660 dollars
Thus, interest is 160 dollars and the amount to be paid back is 660 dollars.

### Interest Rate

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