ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Simple interest is an interest charge that borrowers pay lenders for a loan. It is calculated using the principal only and does not include compounding interest. Simple interest relates not just to certain loans. It’s also the type of interest that banks pay customers on their savings accounts.

Detailed explanation-2: -Simple interest is the amount of interest earned on the original amount of money invested. Simple interest is paid out as it is earned and does not become part of an account’s interest-bearing balance. The invested amount is called principal.

Detailed explanation-3: -Principal: The principal is the original amount borrowed for a loan or the original amount invested. Interest rate: The interest rate is the proportion of the principal that is added to the principal at each time period.

Detailed explanation-4: -Car loans, amortized monthly, and retailer installment loans, also calculated monthly, are examples of simple interest; as the loan balance dips with each monthly payment, so does the interest. Certificates of deposit (CDs) pay a specific amount in interest on a set date, representing simple interest.