Simple and Compound Interest

Syllabus Unit: Mathematics

Why it matters

Chapter overview

Interest problems test whether you can apply the right formula to Principal, Rate and Time — and, critically, whether you know when growth is linear (simple interest) versus compounding (compound interest). This topic covers both formulas, the difference between them, and instalment-based applications common in RRB word problems.

NTPC Stage 1 CBT Syllabus Mathematics 30% weightage

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1Principal (P)Original sum invested

2Rate (R)% per annum

3Time (T)Duration in years

4SI = PRT/100Same amount earned each year

1Simple Interest & Formulas

Simple interest grows linearly — the same fixed amount is earned every single year on the original principal.

Learning Objectives

State and apply the simple interest formula SI = (P×R×T)/100.
Compute the total amount (A = P + SI) after a given time period.
Rearrange the SI formula to solve for principal, rate or time when unknown.
Explain why SI is described as 'linear' growth.

Key Terms

Principal (P)The original sum of money borrowed or invested, before any interest is added.

Rate (R)The interest rate, expressed as a percentage per annum.

Time (T)The duration for which the money is borrowed or invested, usually in years.

Simple Interest (SI)Interest calculated only on the original principal every period: SI = (P×R×T)/100.

Simple interest is the most basic interest calculation on RRB papers — the interest earned is always the same fixed amount each year, since it's computed only on the original principal.

The core formula

SI = (P × R × T) / 100 Amount (A) = P + SI

Worked example

Find the amount when Rs 5,000 is invested at 8% per annum for 3 years. SI = (5000 × 8 × 3)/100 = Rs 1,200. Amount = 5,000 + 1,200 = Rs 6,200.

Rearranging the formula

The same formula can be rearranged to find any unknown: P = (100×SI)/(R×T), R = (100×SI)/(P×T), or T = (100×SI)/(P×R) — useful when the question gives SI and asks for rate or time instead.

Key PointUnder SI, the interest earned is identical every year — Rs 400/year in the example above, every single year — which is the key distinguishing feature from compound interest.