Definition of Interest
The amount of money or a percentage charged by the lender (Banks) to the borrower (You) is known as Interest.
Money does not come for free, and therefore when you borrow money, not only is that money to be returned, but an amount is charged for borrowing too.
These charges are different around the world.
Interest on Money Example
Ram wants to borrow rupees 1000 (principle amount) from a bank for a year. The bank tells him that to borrow this amount, he will have to pay an interest of 10% at the end of the year.
How much would that amount to?
To convert this percentage into an amount, all we need to do is divide the interest amount with the borrowed amount or principle amount.
——- = 100
After dividing, we get the numbers 100. This Rs. 100 is the 10% interest the bank is charging Ram.
Therefore, when Ram returns the money, he would have to pay Rs. 1000 (the borrowed amount), as well as an addition 100 rupees (1000 + 100 = 1,100) charged by the bank as interest for its lending (loan) services.
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