In-Depth: Simple Interest
CLAT Application & Relevance
Importance: Medium. Often appears in DI sets about banking, investments, or loans. Usually in comparison with Compound Interest.
Core Concept
Interest is calculated only on the original principal amount for the entire time period. The interest earned each year is the same.
Key Formulas
- Simple Interest (SI) =
(P * R * T) / 100 - Total Amount (A) = Principal (P) + Simple Interest (SI)
Where P = Principal, R = Rate of interest per annum, T = Time in years.
CLAT-Style Application Example
Passage: A lawyer invests a portion of a settlement amount, ₹2,00,000, in a government bond scheme that offers a simple interest of 7.5% per annum.
Question: "How much total interest will the lawyer earn at the end of 4 years?"
Solution:
P = 2,00,000; R = 7.5; T = 4.
SI = (200000 * 7.5 * 4) / 100
SI = 2000 * 30 = ₹60,000.