Calculating Simple Interest: A Step-by-Step Guide

Simple interest is a method of calculating the interest charge on a principal amount. It is the easiest way to calculate interest on a loan or investment. The formula for simple interest is straightforward and involves three main components: the principal amount, the rate of interest, and the time period.

Understanding the Simple Interest Formula

The formula used to calculate simple interest is:

\( \text{Simple Interest (SI)} = \frac{\text{Principal (P)} \times \text{Rate (R)} \times \text{Time (T)}}{100} \)

Where:

• P is the principal amount (the initial amount of money).
• R is the annual rate of interest (in percent).
• T is the time period (in years).

Applying the Formula to the Given Problem

In this problem, we are asked to calculate the simple interest on a sum of Rs. 12000 at a rate of 15 percent per annum for three years.

Let's identify the given values:

• Principal (P) = Rs. 12000
• Rate (R) = 15% per annum
• Time (T) = 3 years

Now, we can substitute these values into the simple interest formula:

\( \text{SI} = \frac{12000 \times 15 \times 3}{100} \)

Step-by-Step Simple Interest Calculation

Let's perform the calculation:

1. Multiply the principal, rate, and time: \( 12000 \times 15 \times 3 \)
2. Divide the result by 100.

Calculation:

\( \text{SI} = \frac{12000 \times 15 \times 3}{100} \)

We can cancel out the two zeros in the numerator (from 12000) with the two zeros in the denominator (from 100):

\( \text{SI} = 120 \times 15 \times 3 \)

Now, multiply the remaining numbers:

\( \text{SI} = 120 \times (15 \times 3) \)

\( \text{SI} = 120 \times 45 \)

To calculate \( 120 \times 45 \):

\( 120 \times 45 = 120 \times (40 + 5) \)

\( = (120 \times 40) + (120 \times 5) \)

\( = 4800 + 600 \)

\( = 5400 \)

So, the simple interest is Rs. 5400.

Final Simple Interest Result

The simple interest on a sum of Rs. 12000 at the rate of 15 percent per annum for three years is Rs. 5400.

Revision Table: Simple Interest Components

Additional Information: Simple vs. Compound Interest

It's important to distinguish simple interest from compound interest.

• Simple Interest: Interest is calculated only on the initial principal amount. The principal remains the same throughout the investment or loan period.
• Compound Interest: Interest is calculated on the initial principal and also on the accumulated interest from previous periods. The principal amount effectively grows over time as interest is added to it.

Simple interest is typically used for short-term loans or in specific scenarios, while compound interest is more common for savings accounts, long-term investments, and most loans (like mortgages or credit cards).