» Money is not free and it costs to borrow the money. Normally, the borrower has to pay an extra amount in addition to the amount he had borrowed. i.e, To repay the loan, the borrower has to pay the sum borrowed and the interest.
2. Lender and Borrower
» The person giving the money is called the lender and the person taking the money is the borrower.
3. Principal (sum)
» Principal (or the sum) is the money borrowed or lent out for a certain period. It is denoted by P.
» Interest is the extra money paid by the borrower to the owner (lender) as a form of compensation for the use of the money borrowed.
5. Simple Interest (SI)
» If the interest on a sum borrowed for certain period is calculated uniformly, it is called simple interest(SI).
6. Amount (A)
The total of the sum borrowed and the interest is called the amount and is denoted by A
7. The statement "rate of interest 10% per annum" means that the interest for one year on a sum of Rs.100 is Rs.10. If not stated explicitly, rate of interest is assumed to be for one year.
8. Let Principal = P, Rate = R% per annum and Time = T years. Then
9. From the above formula , we can derive the followings