Continuous Internal Assessment 1

Business Mathematics and Statistics

(COC103-1)

SIMPLE INTEREST LEVEL 1

Submitted By(1 BCOM F&A B )

GROUP - 2

BHARGAV L (2312120)
PRAGATI (2312161)
ABHI( 2312104)
NAVYA(2312158)
SUPREETH( 2312184)
ADITHYAN (2312107)
RAHUL (2312166)
SUDHARSHANA( 2312182)

Under The Supervision Of

Prof. Priyanka Pandey

CHRIST(Deemed to be University)
 INDEX

Sl.No Content Pg.No

1 Introduction
2
2 Formula Derivation
3
3 Usage of SI
4
4 Compound Interest vs Simple Interest
5
5 Sums
6-11
6 Conclusion
12
7 References
13

8 Acknowledgment 14

1
 INTRODUCTION

Simple Interest

To Understand Simple Interest we have to understand Interest.

Interest:Interest is a term that describes the cost or benefit of using money over time. When you
borrow money, you have to pay interest to the lender as a fee for using their money. When you
lend or save money, you can earn interest from the borrower or the bank as a reward for letting
them use your money. Interest is usually expressed as a percentage of the amount of money
involved, and it can be calculated in different ways.

 Simple interest is an interest charge that borrowers pay lenders for a loan.

 It is calculated using the principal only and does not include compounding interest.

It's also the type of interest that banks pay customers on their savings accounts.

 Simple interest can provide borrowers with a basic idea of a borrowing cost.
(Borrowing costs are interest and other costs that an entity incurs in connection with
the borrowing of funds
.

The Elements of Simple Interest

1)Principal Amount:
It is the sum borrowed, invested or deposited.

2) Rate Of Interest:
The percentage of interest charged from the borrower or offered to the depositor.
It is often written as R/100.

3) Time:
The duration for which the SI is to be computed, denoted in years. Say, if the period
is in months, then it is represented as quarters or half-year. It is divided by 12,4 or 2
respectively.
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 FORMULA DERIVATION

Simple interest is calculated with the following formula: S.I. = (P × R × T)/100,

where P = Principal, R = Rate of Interest in % per annum, and T = Time, usually
calculated as the number of years.

In order to calculate the total amount, the following formula is used:

Amount (A) = Principal (P) + Interest (I)

Where, Amount (A) is the total money paid back at the end of the time period for
which it was borrowed.

The total amount formula in case of simple interest can also be written as:

A = P(1 + RT)

Let us see the formula to calculate the interest for months. Suppose P be the principal
amount, R be the rate of interest per annum and n be the time (in months), then the
formula can be written as:

Simple Interest for n months = (P × n × R)/ (12 ×100)

Time Simple Interest Formula Explanation

Years PTR/100 T = Number of years

Months (P x n x R)/(12 x 100) n = Number of months

Days (P x d x R)/(365 x 100) d = Number of days

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 USAGE OF SI
It is widely used in the various domains of daily life. Some daily life examples of
simple interest are automobile loans, loans on installments, etc. It is also used widely
by many banks and other organisations. The banks apply simple interest on loans,
which individuals pay every year.

Benefits Of Simple Interest

– Interest doesn't compound or get added to the principal amount for a larger
borrowing cost result..

–Borrowers can save money.

–The simple interest calculation is simple and straightforward.

Limitations Of Simple Interest

–The simple interest is that you don’t really get anything from it, it’s usually used for
small loans that can be paid back quickly.

– Simple interest has the disadvantage that if the interest rate is high, the borrower
will pay more.

– If the repayment period (years) is greater, the borrower will pay more.

–Simple interest does not benefit investors because it does not take into consideration
interest on interest, which makes returns higher

4
 Simple Interest VS Compound Interest

Simple Interest:

– Simple interest is calculated on the principal, or original, amount of a loan.

– SI formula = (P × R × T)/100

– The return amount is much lesser compared to compound interest.

– The principal amount is constant.

– The growth remains quite uniform in the method

– The interest charged on is for the principal amount.

Compound Interest:

– Compound interest is calculated on the principal amount and the accumulated

interest of previous periods, and thus can be regarded as “interest on interest.”

– CI formula = P(1+R⁄100)t − P

– The return is much higher.

– The principal amount keeps on varying during the entire period.

– The growth increases rapidly in this method.

– The interest charged on it is for the principal and accumulated interest.

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 SUMS

Question 1: Niti borrowed ₹ 50000 for 3 years at the rate of 3.5 % per anum.
Find the Simple interest accumulated at the end of 3 years.

Solution:

Question 2 : If Maria borrowed a sum of ₹ 46,500 for a period of 21 months at

20 % per annum, then find the simple interest that she will need to pay.

Solution:

6
Question 3 : Mahesh invested ₹ 3200 in a kotak mahindra bank savings
account , which offered 4.25 % annual simple interest rate. After 5 years, how
much interest will he have earned.

Solution:

Question 4 : A student took a loan of ₹ 5000 from a bank to pay for tution fees.
The bank charges an annual simple interest rate of 6.5 %. If the student plans
to repay the loan in 2 years, how much will they have to pay in total.

Solution:

7
Question 5 : Alex borrowed ₹ 3500 from his friend and promised to return it
after 9 months with an additional 210 ₹ as interest. What is the annual interest
rate on his loan?

Solution:

Question 6 : How much time will it take for an amount of ₹ 450 to yield ₹81 as
interest at 4.5 % per annum of simple interest ?

Solution :

8
Question 7 : Vijay borrows ₹ 520 from Ajith at simple interest of 13 % P.A
What amount of money should Vijay pay to Ajith after 6 months to be absalved
of the debt ?

Solution :

Question 8 : A man borrowed a certain sum of money at the rate of 6 % p.a for
the first two years, and at 9 % for the next three years at 14 % p.a for the
period beyond 5 years. If he pays a total interest of ₹ 22800 at the end of 9 years,
find the amount he borrowed.

Solution :

9
Question 9 : What would be the annual interest accrued on a deposit of ₹ 10,000 in
a bank that pays a 4 % p.a rate of Simple interest ?

Solution :

10
Question 10 : If ₹ 64 amounts to 83.20 in 2 years, what will ₹ 86 amount to in 4
years at the same rate percent per annum ?

Solution :

11
 CONCLUSION

Simple interest is widely used for performing various calculations in banks and
financial organizations. It describes the total amount of money paid as interest on the
borrowed amount. It is used for calculating the yearly or monthly interest of the
principal amount taken by any individual. It is also used to calculate compound
interest.

The formulas to calculate Simple interest are:

SI = PRT/100

SI = Amount - Principal

Through this report its evident that Simple interest is one way to calculate interest
over a fixed amount over a period of time. The rate of interest remains constant
throughout, and the principal amount remains unchanged. Simple interest is in
favourable nature for the borrower because of a fixed cash outflow.

Simple interest can provide borrowers with a basic idea of a borrowing cost. It
involves no calculation of compound interest.

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 REFERENCES

www.Meritnotes.com
www.examsbook.com
www.GeeksforGeeks.org
www.wallstreetmojo.com

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 ACKNOWLEDGMENT

First and foremost we would like to thank the University for giving us a platform
where even before the syllabus completion, the interaction among the peers was made
possible through this group project.

We would like to express our sincere gratitude to our Business Mathematics teacher
Prof. Priyanka Pndey for the valuable suggestions and guidelines which immensely
helped in completing this project.

We are also grateful to each and every member of the team who contributed and
coordinated smoothly in making this report.

– Group 2

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