Bank Theory

Financial Mathematics – Interest & Annuities | Bank Theory > Financial Mathematics – Calculation of Interest & Annuities What is Simple Interest? Simple Interest is calculated only on the original principal amount over the period of investment or loan. The formula is: SI = (P × R × T) / 100 Where: P = Principal R = Rate of Interest per annum T = Time in years Example: If ₹10,000 is invested at 5% per annum for 3 years, then SI = (10000×5×3)/100 = ₹1,500. What is Compound Interest? Compound Interest is calculated on the principal plus accumulated interest. The formula is: CI = P × (1 + R/100) T – P Example: For ₹10,000 at 5% p.a. compounded annually for 3 years: CI = 10000 × (1.05) 3 – 10000 = ₹1,576.25 Fixed and Floating Interest Rates Fixed Rate: Remains constant over the loan/investment term. Floating Rate: Varies based on marke...