# Exercise 7.5 class 8 solution

#### Exercise 7.5 class 8 solution-Introduction

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#### Exercise 7.5 class 8 solution – what is interest ?

Interest refers to the cost of borrowing money or the return on investment for lending money or depositing funds in a financial institution. It’s essentially the compensation or charge for the use of money over a period of time.

There are two primary types of interest:

Simple Interest: Simple interest is calculated on the initial principal amount throughout the entire loan or investment period. The formula for simple interest is:

Simple Interest = Principal (initial amount) x Rate (annual interest rate) x Time (in years)

The interest is fixed and does not change over time.

Compound Interest: Compound interest takes into account not only the initial principal but also the accumulated interest that has been added to the principal at specific intervals. This means that interest is calculated on both the initial amount and any previously earned interest. Compound interest often results in a higher return on investment or a larger debt over time. The formula for compound interest is more complex:

Interest rates can be fixed (the rate remains constant) or variable (the rate changes over time). They can be applied in various financial contexts, such as loans (e.g., mortgages, car loans), savings accounts, investments, and credit cards.

The calculation of interest is fundamental in finance and plays a significant role in personal and business financial decisions, including saving for retirement, managing debt, and making investment choices. It’s important to understand the terms and conditions of any financial transaction that involves interest to make informed financial decisions.

#### Exercise 7.5 class 8 solution- Simple interest

Simple interest is a straightforward method of calculating interest on a principal amount (the initial amount of money) over a specific period of time. Unlike compound interest, which takes into account previously earned interest, simple interest is based solely on the original principal amount. The formula for calculating simple interest is as follows:

Simple Interest (I) = Principal (P) x Rate (R) x Time (T)

Where:

• I is the simple interest.
• P is the principal amount (the initial sum of money).
• R is the annual interest rate (expressed as a decimal).
• T is the time period (in years) for which interest is calculated.

To calculate the final amount, including both the principal and simple interest, you can use the following formula:

Total Amount (A) = P + I

Here’s a simple example to illustrate how simple interest works:

Suppose you deposit \$1,000 in a savings account with a simple interest rate of 5% per year. How much interest will you earn after 3 years?

#### Exercise 7.5 class 8 solution -Examples of the exercise

Example 7.5.1. A sum of Rs 5000 is borrowed at a rate of 8% per annum for 2 years ,find the simple interest and the amount to be paid at the end of two years.

solve.To find the simple interest and the total amount to be paid at the end of two years for a sum of Rs 5,000 borrowed at a rate of 8% per annum, you can use the simple interest formula:

Simple Interest (I) = Principal (P) x Rate (R) x Time (T)

Where:

• P (Principal) = Rs 5,000
• R (Rate) = 8% per annum (0.08 as a decimal)
• T (Time) = 2 years

#### Exercise 7.5 class 8 solution- exercise preview

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#### Exercise 7.5 class 8 solution- solution pdf

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