Category : 8th Class
Interest is the amount paid on the money paid by the borrower to the lender for the use of money lent for the given fixed period of time. The amount borrowed is called the principle, time for which it is borrowed is called as the period and amount paid as a interest per year is called as the rate of interest.
Interest is of two types:
1. Simple interest
2. Compound interest
If the interest reckoned is uniform then it is known as the simple interest and if the interest is computed at the end of certain fixed period such that the amount at the end of the period become the principal for the next intervals, then the total interest calculated over all the intervals is called compound interest. The compound interest is calculated either yearly, half yearly or quarterly. Thus the compound interest at the end of certain specified period is equal to the difference between the amount at the end of the period and the original principal.
C.I. = Amount - Principal
The fixed period over which the interest is calculated is known as the conversion period. After conversion period the interest is added to the principal and the amount is taken as the principal for the next period. If it is done after every one year then it is called compounded yearly, if it is done after every six month, then it is called half yearly and if it is done after every three month then it is called quarterly. If no conversion period in the question then we normally take it as yearly.
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