# Simple Interest

Simple interest is directly proportional to time and the total interest is payable at the end of the specified period usually one year. For example Rs. 2000 is borrowed for 2 years at 9% interest rate, the interest earned will be

Rs. (2000 x 0.09 x 2) = Rs. 360. The interest I is found by the formula

I = p x n x i

Where I = Simple interest amount

P = Principal amount

i = Rate of interest

n = No. of years in the period

If one wishes to know the entire amount, S, due (principal + interest).

S = P + I = P (1 + ni)

Interest computed in this way is known as simple interest and the factor (1 + n - i) is called the interest factor.

## Ordinary Simple Interest

Usually the unit of time for the interest period is taken as one year and the resulting interest rate is the rate per year. When it is required to compute the interest due for a fraction of one year, it is often the practice to consider 360 days in a year. Thus, 50 days are equal to $\frac{50}{360}$ of one year. Interest calculated on this basis is called "Ordinary simple interest".

## Exact Simple Interest

If the interest is calculated on the basis of 365 days a year, the result is called "Exact simple interest".

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