# Calculating Interest Rate Formula

#### Bywisdomira

(Last Updated On: September 27, 2021)

## Interest Rate Formula | Calculating Interest Rate Formula

Calculating Interest Rate Formula : Using the interest rate formula, we get the interest rate, which is a percentage of the principal amount, charged by the lender or bank to the borrower for the use of his assets or money for a specific time period. The rate a bank pays to its depositors for holding money in a savings account, fixed deposit , or recurring deposit is also called the interest rate and in this section, we will discuss the interest rate formula.

### What is the Interest Rate Formula?

For the loan taken , The interest rate formula helps to calculate the amount to be repaid and the interest on investments on fixed deposits, mutual funds etc. The interest rate formula also helps to calculate the interest on the credit card. The rate of interest for a given amount on simple interest can be calculated by the following formula,

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Interest Rate = (Simple Interest × 100)/(Principal × Time)

The interest rate for a given amount on compound interest can be calculated by the following formula,

Compound Interest Rate = P (1+i) – P

### Interest Rate Formula

In terms of simple interest, the interest rate formula is written as:

Rate of interest = (Simple Interest × 100)/(Principal × Time)

In terms of compound interest, the interest rate formula is written as:

Compound interest rate = P (1+i) t – P

where,

P = Principal Amount
I = R = Interest Rate
t = time period
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Simple Interest Formula with examples

NCERT Solutions for Class 10 Maths Chapter 3 Ex 3.3

### Examples Using the Interest Rate Formula

Example 1: If Sam lends his friend \$5000 and after a year receives \$6000. Using the interest rate formula, find at what rate of interest did Sam lent the amount to his friend?

Solution:

Principal Amount = \$5000 (given)

Simple Interest = \$6000 – \$5000 = \$1000

time = 1 year

Using the interest rate formula,

Rate of interest = (Simple Interest × 100)/(Principal × Time)

Rate of interest = (1000 × 100)/(5000 × 1)

interest rate = 20%

Hence, Sam will charge his friend 20% interest rate in one year.

Example 2: James borrowed \$600 from a bank at some rate per year and that amount doubled in 2 years. Calculate the rate at which James lent the money.

Solution:

Principal Amount = \$600 (given)

Simple Interest = \$1200 – \$600 = \$600

time = 2 years

Using the interest rate formula,

Rate of interest = (Simple Interest × 100)/(Principal × Time)

Interest rate = (600 ×100)/(600 ×2)

interest rate = 50%

Therefore, James borrowed money at the rate of 50%.

Example 3: If the simple interest is 1200, then what is the rate of interest on the principal amount 12000 in 2 years?

Solution:

Using the simple interest rate formula,

The rate of interest for a given amount can be expressed as,

Rate of interest = (Simple Interest × 100)/(Principal × Time)

Rate of interest = (1200 × 100)/(12000 × 100)

interest rate = 5%

Therefore, the interest rate is 5%