# Interest Formula

The simple interest rate is a ratio and is typically expressed as a percentage. It plays an important role in determining the amount of interest on a loan or investment. The amount of interest charged or earned depends on three important quantities that we will examine next. The formula is given below.

The **Interest formula** is given as,

\[\large Simple Interest = Principal*Rate*Time\]

\[\large Compound\;Interest = Principal\left ( 1 + Rate \right )^{Time}-Principal\]

## Interest Formula Problems

The solved problems on interest formula are given below:

### Solved Examples

**A sum of Rs 4000 is borrowed and the rate is 7%. What is the simple and compound interest for 2 years?**

**Question 1:****Solution:**

$\large Simple\;Interest= Principle*Rate*Time$Simple Interest = 4000 × 7/100 × 2

Simple Interest = 560

The simple Interest for 2 years is Rs 560

$Compound\;Interest=Principal *(1+Rate)^{Time}- Principal$

$Compound\;Interest=4000*(1+\frac{7}{100})^2-4000$

Compound Interest = 4000 × 1.0064 – 4000

Compound Interest = 560

The compound interest for 2 years is Rs 560

More topics in Interest Formula | |

Simple Interest Formula | Compound Interest Formula |

Continuous Compound Interest Formula | Loan Balance Formula |