Calculation of Simple Interest and Compound Interest for JAIIB

Calculation of Simple Interest and Compound Interest for JAIIB

Simple Interest Definition

Principals (P):

The original Sum of Money Loaned/deposited.


Interest (I):

The amount of money that you pay to borrow money or the amount of money that you earn on a deposit

Time (T):

The duration for which the money is borrowed/deposited.

Rate of Interest (R):

the percent of interest that you pay for money borrowed, or earn for money deposited.

Formula for Calculating S.I


Where
P= Principal
R- Rate of Interest (in %)
T = Time period.

Examples:

Question. What is the S.I on 7500/- at the rate of 10% per annum for 6 years

Solution: 


Question 2. A man borrowed Rs 15000/- at the rate 24% S.I and clear debt after 6 years, how much Rs. has to return.

Solution:

Compound Interest

Definition

Internal calculation on initial principal and also on the accumulated interest of previous periods of deposit or loan

Formula:

Formula for calculation of compound interest

For Example:

A took three years loan of Rs. 10000 at an interest rate of 5% that compound annually. What would be the compound interest?


Elaboration

Year Opening Balance(P) Interest (I) 5% Closing Balance (P+I)
1. 10000 500 10,500.00
2. 10500 525 11025
3. 11025 551 11576

Compound Interest Payment can be made


  • Monthly = 12
  • Quarterly = 4
  • Semi- annually= 2
  • Annually = 1.

(It means I should be divided by no. of time it is compounded)

For Example:

Ram invested Rs. 2000 for 2 years at the rate of 5% that is compounded annually. What will be C.I?


Taking the same example compounded Monthly

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