Simple Interest, Future Value – Concept, Formula with Numerical
[Watch video for detailed explanation of concept, formula of simple interest]
In simple interest, the interest for a sum borrowed for a certain period is reckoned uniformly. That is at each period the interest will be same. Or the interest once credited doesnot itself earn further interest. It is calculated as a simple percentage of the original principal amount. Formula for calculating simple interest is
SI = nPi
Where, “P” is original principal, “i” is the interest rate per time period in decimals and “n” is the number of time periods.
Future value is the total value of the principal after n number of periods. This is the sum of principal and the interest received during the period. Future value is given by the formula
FV = P + SI = P + (nPi) = P [1 + ni]
Where, P is the principal, i is the interest rate for a time period, and n is the number of time periods.
Numerical
Q 1. John borrowed Rs. 24000 from a bank at a simple interest rate of 10% pa for 3 years. How much, in total he should pay back at the end of third year?
[Watch video for solution of this numerical]