If ₹1,200 becomes ₹1,440 in 4 years with simple interest, find the rate of interest per year.

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Points to Remember:

  • Simple interest calculation involves a fixed percentage of the principal amount each year.
  • The formula for simple interest is: Simple Interest (SI) = (Principal × Rate × Time) / 100
  • We need to rearrange this formula to solve for the rate of interest.

Introduction:

This question requires a factual and analytical approach to determine the rate of simple interest. Simple interest is a method of calculating interest where the interest is only applied to the principal amount. It’s a straightforward calculation, unlike compound interest where interest is added to the principal each period, leading to exponential growth. This problem involves finding the annual interest rate given the principal amount, the final amount, and the time period.

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Body:

1. Identifying the Variables:

  • Principal Amount (P) = ₹1200
  • Amount (A) = ₹1440
  • Time (T) = 4 years
  • Rate of Interest (R) = ? (This is what we need to find)

2. Calculating Simple Interest (SI):

The simple interest earned is the difference between the final amount and the principal amount:

SI = A – P = ₹1440 – ₹1200 = ₹240

3. Applying the Simple Interest Formula:

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The formula for simple interest is:

SI = (P × R × T) / 100

We can rearrange this formula to solve for R:

R = (SI × 100) / (P × T)

4. Substituting the Values and Calculating the Rate:

Substituting the values we have:

R = (240 × 100) / (1200 × 4) = 5%

Therefore, the rate of interest per year is 5%.

Conclusion:

In summary, by applying the simple interest formula and substituting the given values, we determined that the rate of interest is 5% per annum. This calculation demonstrates a fundamental concept in finance. Understanding simple interest is crucial for making informed decisions regarding savings, investments, and loans. Promoting financial literacy through clear and accessible explanations of such basic concepts is vital for empowering individuals to manage their finances effectively and contribute to a more financially stable society. This aligns with the broader goal of holistic development and economic empowerment.

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