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Questions and Answers
What does the term 'Principal' refer to in the context of interest?
The process of adding interest to the original principal to form a new principal is called _____ Interest.
Compound
What is the formula for calculating Simple Interest?
Simple Interest = PxRxT / 100
How is the Compound Interest computed after each time interval?
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What is Compound Interest abbreviated as?
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Interest is calculated uniformly on the actual principal throughout the loan period in Compound Interest.
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What are the possible conversion periods for calculating Compound Interest?
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Study Notes
Simple Interest
- Formula for calculating Simple Interest: SI = (P × R × T) / 100
- P = Principal amount
- R = Rate of interest per annum
- T = Time period in years
Compound Interest
- Unlike simple interest, compound interest is calculated on the total amount (principal + interest) at predetermined intervals.
- The borrower and lender agree on a Conversion Period for interest calculation, such as:
- Annually (1 year)
- Semi-annually (6 months)
- Quarterly (3 months)
- Monthly (1 month)
- At the end of each conversion period, interest is calculated and added to the principal.
- The new total becomes the principal for the next conversion period.
- Compound Interest (C.I.) is the difference between the final amount and the original principal after a specified time.
Calculation of Compound Interest
- Various methods exist to compute the amount and compound interest.
- A basic understanding begins with examples like calculating simple interest.
- Example: For a principal of ₹10,000 at a rate of 6% per annum over two years:
- Simple Interest would be calculated using the aforementioned formula.
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Description
This quiz covers the concepts of simple and compound interest as introduced in Class VII. It includes the formulas and applications needed to understand how interest is calculated on various financial products. Test your knowledge and see how well you grasp these fundamental financial concepts!
