Interest Rate Formula

1. What is Interest Rate?

An interest rate is the cost of borrowing money or the return on investment for lending money, usually expressed as a percentage.

2. What are the Two Types of Interest Rate?

The two types of Intrest Rate are Simple Interest Rate and Compound Interest Rate

3. What is the Simple Interest Rate Formula?

The Simple Interest Rate Formula is given as SI = (P×R×T)/100

4. What is the Compound Interest Rate Formula?

The compound interest rate formula is given as CI = P(1 + r/100)^t – P

5. What’s the Difference between Simple and Compound Interest?

Simple interest is calculated on the initial principal amount, while compound interest is calculated on both the principal and previously interest.

6. Which one is greater, simple interest amount or compound interest amount?

Simple interest is calculated on the amount borrowed initially, whereas compound interest also includes previously earned interest. As a result, during the first year, the simple and compound interest amounts are equal for the same principal amount and rate. Following that, the compound interest amount is always bigger.

6. What is the Rule of 72, and How does it Relate to Interest Rates?

The Rule of 72 is a quick way to calculate the approximate time required to double the principal amount at a fixed annual rate. It is equal to 72 divided by the annual interest rate.

7. What are the Advantages of Simple Interest over Compound Interest, and vice versa?

Simple interest is preferred for short-term investments as it offers simplicity and predictability. While compound interest gives much higher returns in long run and so is preferred for long-term investments.

8. What is Effective Annual Rate (EAR)?

Effective Annual Rate represents the actual rate of interest after consideration of overall amount (principal amount and previously accumulated interest) on which the interest rate is applied.

Interest Rate Formula is a mathematical formula used to find the percent rate which is charged on Principle to yield the final amount. Interest Rate is a fundamental concept that comes into play whenever money changes hands. Whether someone is borrowing, lending, or investing money, interest rates play a crucial role. Interest is of two types namely simple interest and compound interest. Interest Rates can be charged daily, monthly, weekly, quarterly, half-yearly, and yearly.

This article will explain the basics of interest rates, the difference between simple and compound interest, and provide the Interest Rate formulas for both types.