How to Calculate Simple & Compound Interest.

Principal or Sum: 

The money borrowed or lent out for a certain period is called principal or sum.

Interest:

Extra money paid for using others money is called Interest.

Simple Interest

If the interest on a sum borrowed for a certain period is reckoned uniformly, then it is called Simple Interest.

Formula

Principal = P
Rate = R% per annum
Time = T years. Then,

1. Simple Interest (S.I) = (P*T*R)/100
   
2. Principal(P) = (100*S.I)/(R*T)
        Rate (R) = (100*S.I)/(P*T)
        Time (T) = (100*S.I)/(P*R)

Compound Interest  

Sometimes it so happens that the borrower and the lender agree to fix up a certain unit of time, say yearly or half-yearly or quarterly to settle the previous account. In such cases, the amount after the first unit of time becomes the principal for the 2nd unit, the amount after second unit becomes the principal for the 3rd unit and so on.

After a specified period, the difference between the amount and the money borrowed is called Compound Interest for that period.

Formula:

Let principal=p, Rate = R% per annum, Time= n years

1. When interest is compounded Annually,
            Amount=P[1+(R/100)]n
2. When interest is compounded Half-yearly,
            Amount=P[1+((R/2)100)]2n
3. When interest is compounded Quarterly,
            Amount=P[1+((R/4)100)]4n
4. When interest is compounded Annually,
            Amount=P [1+(R/100)]3 [1+((2R/5)/100)]
5. When rates are different for different years R1%, R2%, R3% for 1st ,2nd , 3rd yrs respectively, then
            Amount=P[1+(R1/100)][1+(R2/100)][1+(R3/100)]
6. Present Worth of Rs. X due n years is given by
            Present Worth=X/[1+(R/100)]n