Comparing Quantities - Simple Interest

Principal ($P$): The initial amount of money borrowed from a bank or lent to someone is called the Principal. Visualize this as the starting 'base' amount at year zero on a financial timeline.

Interest ($I$): This is the extra money paid by the borrower to the lender for using the principal. It acts like a 'service charge' or 'rent' for the money used over time.

Rate of Interest ($R$): The interest paid on every $100$ for a period of one year is known as the Rate percent per annum ($p.a.$). In a visual representation like a pie chart, the rate represents the slice of the principal that is added as interest each year.

Time Period ($T$): The duration for which the money is borrowed or deposited is the Time Period, usually expressed in years. If the time is given in months or days, it must be converted to years (e.g., $6$ months = $\frac{6}{12}$ or $\frac{1}{2}$ year).

Simple Interest ($SI$): This is a method where interest is calculated only on the original principal amount throughout the entire period. If you plotted this on a graph with Time on the x-axis and Interest on the y-axis, you would see a perfectly straight diagonal line starting from the origin.

Amount ($A$): The total money returned to the lender at the end of the time period is called the Amount. It is the sum of the Principal and the Simple Interest. Visually, you can imagine two blocks stacked on top of each other: a large block for Principal and a smaller block for Interest, together forming the total Amount.

Uniformity of Simple Interest: Unlike compound interest, Simple Interest remains the same for every year if the Principal and Rate are constant. For example, if the interest is $50$ in the first year, it will also be $50$ in the second and third years.