# Simple Interest - Important Points

## What is Simple Interest?

If a person borrows some money as a loan from his friends, relatives, bank etc and promises to return it after a specified time period along with some extra money, then the money borrowed is called the Principal, usually denoted by P, and the extra money paid is called the Interest, usually denoted by I .The total money paid back, that is, the sum of Principal and the Interest is called the Amount, and is usually denoted by A.

Thus, **A = P + I**

The interest is mostly expressed as a rate percent per year (per annum). Interest depends on, how much money (P) has been borrowed and the duration of time (T) for which it is used. Interest is calculated according to a mutually agreed rate percent, per annum (R).

[i.e. R = r % = 100 ]

## How to calculate Simple Interest?

Simple Interest (SI) = [Principal x Rate % per annum x time] / 100

Relationship between principal and amount is:

**P = (100 x Amount) / (100 + RT)**