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Simple Interest:
If you deposit $1000 in a bank for one year, the bank pays an Interest of $5. The interest paid for $1000 for 1 year is called the rate of interest (I).

Similarly, when money is borrowed from a bank, at the end of a specified time period, interest on the money borrowed need to be paid. The amount of money borrowed is called principal (P).

The total amount (the principal + interest ) of money is called the amount (A).
Amount = Principal + Interest
A = p + I


Simple Interest, I = pnr/100
Where, p is the principal, r is the rate of interest per annum (per year) and n the number of years.

Example 1: Jane borrowed $4000 for 8% simple interest per annum. What is the simple interest she will pay for 4 years. What is the amount she need to pay to close the loan after 4 years?
p = $4000, r = 8%, n = 4years
I = pnr/100 = (4000 x 4 x 8)/100 = $1280
Amount (after 4 years to close the loan) = Principal + Interest = $4000 + $1280 = $5280

Principal, p = (100 x I)/nr Number of years, n = (100 x I)/pr Rate of interest, r = (100 x I)/np
Example 2: Jane deposited some amount in the bank for 5% simple interest per annum for 2 years. If the simple interest is $50, calculate the principal.
I = $50, r = 5%, n = 2years
p = (100 x I)/nr = (100 x 50)/(5 x 2) = $500


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