Points to Remember:
- Simple interest calculation involves principal, rate, and time.
- The formula for simple interest is: Simple Interest (SI) = (P Ã R Ã T) / 100, where P = Principal (loan amount), R = Rate of interest, and T = Time in years.
- We need to rearrange the formula to find the principal amount.
Introduction:
This question requires a factual and analytical approach to solve a simple interest problem. Simple interest is a method of calculating interest on a loan or investment where interest is only earned on the principal amount. It’s a straightforward calculation, unlike compound interest where interest is earned on both the principal and accumulated interest. The question asks us to determine the principal amount (loan borrowed) given the simple interest paid, the interest rate, and the loan period.
Body:
Understanding the Problem:
We are given the following information:
- Simple Interest (SI) paid = â¹3,600
- Rate of interest (R) = 9% per annum
- Time period (T) = 4 years
We need to find the Principal amount (P), which represents the original loan amount.
Applying the Simple Interest Formula:
The formula for simple interest is:
SI = (P Ã R Ã T) / 100
To find the principal (P), we rearrange the formula:
P = (SI Ã 100) / (R Ã T)
Calculation:
Substituting the given values into the rearranged formula:
P = (3600 Ã 100) / (9 Ã 4)
P = 360000 / 36
P = 10000
Therefore, the amount of loan borrowed was â¹10,000.
Verification:
Let’s verify our answer by calculating the simple interest using the principal amount we found:
SI = (10000 Ã 9 Ã 4) / 100
SI = 3600
This matches the given simple interest of â¹3,600, confirming our calculation.
Conclusion:
By applying the simple interest formula and rearranging it to solve for the principal amount, we determined that the man borrowed â¹10,000. This problem highlights the importance of understanding basic financial calculations. Accurate calculation of interest is crucial for both borrowers and lenders to ensure transparency and fairness in financial transactions. Financial literacy initiatives should focus on educating individuals on such fundamental concepts to promote responsible borrowing and lending practices. This empowers individuals to make informed financial decisions and contributes to a more stable and equitable financial system.