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Interest in Mathematics

The document explains the concepts of Simple Interest and Compound Interest, including their definitions, uses, and formulas for calculation. Simple Interest is calculated only on the principal amount, while Compound Interest includes interest on previously accumulated interest. The document also provides numerical problems for practice related to both types of interest.

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19 views3 pages

Interest in Mathematics

The document explains the concepts of Simple Interest and Compound Interest, including their definitions, uses, and formulas for calculation. Simple Interest is calculated only on the principal amount, while Compound Interest includes interest on previously accumulated interest. The document also provides numerical problems for practice related to both types of interest.

Uploaded by

aliriasatali062
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Interest in Mathematics

Interest is a financial term that represents the cost of borrowing money or the gain on investments

over time. It is generally divided into two main types: Simple Interest and Compound Interest.

1. Simple Interest
Definition:

Simple interest is calculated only on the principal amount (initial investment or loan) and does not

include interest on interest.

Uses:

- Commonly used in short-term loans or investments.

- Used in car loans, personal loans, and savings accounts with fixed interest.

Formula:

Simple Interest (SI) = P × r × t

Where:

- P = Principal amount (initial amount)

- r = Annual interest rate (in decimal form)

- t = Time (in years)

Example:

If you invest $10,000 at a 5% annual simple interest rate for 3 years:

SI = 10,000 × 0.05 × 3 = 1,500

You will earn $1,500 as interest.

2. Compound Interest
Definition:

Compound interest is calculated on the principal amount as well as the interest accumulated over

previous periods.

It is also known as 'interest on interest.'

Uses:

- Commonly used in long-term investments and loans.

- Used in savings accounts, fixed deposits, mortgages, and credit cards.

Formula:

A = P (1 + r/n)^(n × t)

Where:

- A = Total amount (Principal + Interest)

- P = Principal amount (initial amount)

- r = Annual interest rate (in decimal form)

- n = Number of times interest is compounded per year

- t = Time (in years)

Example:

If you invest $10,000 at a 5% annual compound interest rate for 3 years, compounded annually:

A = 10,000 (1 + 0.05/1)^(1 × 3) = 10,000 (1.05)^3 = 11,576.25

The total amount after 3 years would be $11,576.25, and the interest earned would be $1,576.25.

Numerical Problems
1. Calculate the Simple Interest on $5,000 at 4% per annum for 2 years.

2. Find the Compound Interest on $8,000 at 6% per annum for 3 years, compounded annually.

3. What is the total amount after investing $15,000 at 5% Simple Interest for 4 years?
4. Calculate the Compound Interest on $12,000 at 7% for 2 years, compounded semi-annually.

5. How much interest will you earn on $20,000 at 3% Simple Interest for 5 years?

6. Find the total amount on $25,000 at 4% Compound Interest for 3 years, compounded quarterly.

7. Calculate the Simple Interest on $10,000 at 6% for 3 years.

8. What will be the Compound Interest on $18,000 at 8% for 2 years, compounded annually?

9. Find the total amount after investing $22,000 at 4.5% Simple Interest for 3 years.

10. Calculate the Compound Interest on $30,000 at 5% for 4 years, compounded annually.

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