Introduction to Business Math

This link is concerned with interest, interest rates and their effect on the value of money. Companies pay millions of rupees as interest each year for the use of money which they borrowed. We earn profit on money which we have invested in saving accounts, certificates of deposit, etc. Interest is a fee, which is paid for the use of money. We pay interest on the loans drawn from banks. Similarly, banks pay us interest on money deposited in savings accounts, etc. The money which is invested is called principal or capital. Interest is paid usually in proportion to the principal over the period for which the money is used. Interest rate specifies the rate at which interest accumulates. Interest rate is normally expressed as a percentage of principal per period of time, e.g. 18% per month, 5% per year, etc. The sum of the principal of interest is called amount. The interest rate actually tells us how much the amount increases by for every Rs.100. Interest is further divided into two parts: simple interest & compound interest.

Suppose a person wants to start a business. Obviously he needs money to run the business, and if he doesn’t have enough money to run the business then he must borrow some from another person or from the bank under certain conditions. These conditions may include time period of returning the money, demand of some extra money (interest), etc.

This section is concerned with solving the types of problems which arise between two parties or two persons, i.e. how much extra should be charged, how much time can be taken to pay back the money, what the rate of interest should be, etc. The concept of interest has also an application that is not related to money, which is called population growth rate. We shall first examine the nature of interest and its computations, and then we shall discuss several different investment situations and computations related to each.