INTEREST

Interest

Definition OfInterest

Interest is a process in which an amount of money borrowed (or lent) increases over time.

More AboutInterest

The amount borrowed (or lent) is called Principal.
A fixed percentage of money is added to the Principal at regular time interval and that is called as rate of interest.
There are mainly three types of interests: Simple interest, Compound interest, and Continuously compound interest.

Video Examples: Simple Interest Formula

Example ofInterest

The interest earned on $1050 at 8% per annum for 2 years = example ofInterest . Therefore, the interest is $168.

Solved Example onInterest

Ques: Paul gave $850 to his friend at an interest of 12% per year. Find the interest per year.

Choices:

A. $102
B. $51
C. $120
D. $204
Correct Answer: A

Solution:

Step 1: Amount given by Paul to his friend = $850
Step 2: Rate of interest = 12%
Step 3: Interest per year = $850 × 12/100
Step 4: = $102.

Quick Summary

Interest is the cost of borrowing money or the reward for lending it.
Principal is the initial amount borrowed or lent.
Rate of interest is the percentage charged or earned on the principal.
Simple interest, compound interest, and continuously compound interest are the main types of interest.

\[ Simple Interest: I = P \times r \times t \]

🍎 Teacher Insights

Use real-world examples to illustrate the concept of interest, such as loans, savings accounts, and investments. Encourage students to calculate interest manually before using formulas to build understanding.

🎓 Prerequisites

Basic Arithmetic
Percentages

Check Your Knowledge

Q1: Paul gave $850 to his friend at an interest of 12% per year. Find the interest per year.

$102 $51 $120 $204

Q2: What is the principal if the interest earned is $168 at 8% per annum for 2 years?

$1000 $1050 $1100 $1150

Frequently Asked Questions

Q: What is the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest.

Q: How does the frequency of compounding affect the total interest earned?
A: The more frequently interest is compounded (e.g., daily vs. annually), the higher the total interest earned will be.