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If the simple interest on Rs 5,000 for 3 years at a certain rate is Rs 1,500, what is the rate of interest?
10%
12%
8%
15%
10%
Calculate interest for 1 year, which is 1500 / 3 = 500. Since 500 is exactly 10% of 5000, the rate is 10%.
Principal P = 5000, Time T = 3 years, Simple Interest SI = 1500
R=P├ЧTSI├Ч100тАЛ
Calculate interest for 1 year, which is 1500 / 3 = 500. Since 500 is exactly 10% of 5000, the rate is 10%.
Many students accidentally calculate the interest for the entire period as the annual interest rate without dividing by the number of years.
Identify given variables
Extract the principal P=5000, total interest SI=1500, and time T=3 years from the question.
P=5000,SI=1500,T=3
State the rate formula
Rearrange the Simple Interest formula SI=100P├ЧR├ЧTтАЛ to solve for R.
R=P├ЧTSI├Ч100тАЛ
Calculate the interest rate
Substitute the given values into the formula to find the rate of interest.
R=5000├Ч31500├Ч100тАЛ=15000150000тАЛ=10
A is correct because the calculated rate of interest is 10%.
This formula is the foundation for Compound Interest calculations; remember that Simple Interest remains constant every year while Compound Interest changes.