Understanding Simple Interest Calculation

Simple interest is a quick and easy method of calculating the interest charge on a loan. It is calculated only on the principal amount, using the formula:

\[ SI = \frac{P \times R \times T}{100} \]

Where:

• \(SI\) is the Simple Interest
• \(P\) is the Principal amount (the initial amount borrowed or invested)
• \(R\) is the Rate of interest per annum (in percentage)
• \(T\) is the Time period (in years)

Calculating Simple Interest for Rs. 980

In this specific problem, we are asked to find the simple interest on a principal amount of Rs. 980 for a duration of 4 years at an annual interest rate of 12 percent.

Given Information:

• Principal (\(P\)) = Rs. 980
• Rate of Interest (\(R\)) = 12% per annum
• Time Period (\(T\)) = 4 years

Step-by-Step Calculation:

Using the simple interest formula, we substitute the given values:

\[ SI = \frac{980 \times 12 \times 4}{100} \]

First, multiply the rate and time:

\[ 12 \times 4 = 48 \]

Now, multiply the principal by this result:

\[ 980 \times 48 \]

Let's perform this multiplication:

So, \(980 \times 48 = 47040\).

Now, divide the result by 100:

\[ SI = \frac{47040}{100} \]

\[ SI = 470.40 \]

The simple interest is Rs. 470.40.

Final Simple Interest Amount

The calculated simple interest on a principal of Rs. 980 for 4 years at a rate of 12 percent per annum is Rs. 470.4.

Revision Table: Simple Interest Concepts

Additional Information on Simple Interest

Simple interest is different from compound interest. In simple interest, the interest earned in previous periods is not added to the principal for calculating interest in the current period. This makes simple interest calculations straightforward. It is often used for short-term loans or simple calculations where the compounding effect is not considered.

For example, if you borrow Rs. 1000 at 10% simple interest per annum for 2 years:

• Year 1 Interest = \(\frac{1000 \times 10 \times 1}{100}\) = Rs. 100
• Year 2 Interest = \(\frac{1000 \times 10 \times 1}{100}\) = Rs. 100
• Total Simple Interest = Rs. 100 + Rs. 100 = Rs. 200

The interest is calculated only on the initial Rs. 1000 each year.