Question

What does $6$ percent per annum mean?

Answer 1

Rate of interest:

• Per annum means the annual rate of interest i.e., a rate of interest for a year.
• The rate of interest is $6\%$ per annum, which means the interest charged for one year will be $6\%$ multiplied by the principal amount.

Formulas:

Simple Interest:

$S.I=\frac{P\times R\times T}{100}$ , where $P$ is the principal amount, $T$ is the time period, and $R$ is the rate of interest

Compound Interest:

$C.I=P{\left(1+\frac{r}{100}\right)}^{nt}-P$ , where $P$ is the principal amount, $t$ is the time period, $r$ is the rate of interest, and $n$ the number of times interest is compounded yearly

Example: The interest charged for one year on the principal amount of Rs. $50000$ at a rate of $6\%$ is,

Simple interest is,

$S.I=\frac{50000\times 6\times 1}{100}$

$\Rightarrow$ $S.I=3000$

Hence, the amount of simple interest will be Rs. $3000$.

If the interest is compounded yearly, then

Compound interest is,

$C.I=50000{\left(1+\frac{6}{100}\right)}^1-50000$

$\Rightarrow$ $C.I=50000\left(1+0.06\right)-50000$

$\Rightarrow$ $C.I=53000-50000$

$\Rightarrow$ $C.I=3000$

Hence, the amount of compound interest will be Rs. $3000$.