maths > commercial-arithmetics

Story of "Interest"

    what you'll learn...


the following terminology is introduced
 interest rate,
 loan duration, and
 loan maturity value.

The story connecting these are made very easy to remember.

shopkeepers story

Consider: One customer buys a pen for 20 coins from a shopkeeper. Note that the shopkeeper does not manufacture the pen herself.

A shopkeeper buys a pen for a low value from a manufacturer and sells for a higher value, and makes a profit. For example, shopkeeper bought a pen for 12 coins and sells for 20 coins. The 8 coins is the profit for his work.

A shopkeeper has some thousands of items for sale. Each of these items are bought from manufacturers. That means, the shopkeeper has put-in the money required to buy the goods.

Money can be invested and it will provide profit. The shopkeepers put their own money and make a profit.

For example: A shopkeeper has put in 1,00,000 coins in buying goods and makes 20,000 coins per month in profits.

This is true for other professions as well, not just for shops. Like hotels, sports venues, mobile phones, furniture, etc.

lender's story

A person does a job or business that occupies her entire time. She has excess of 3 lakh coins. A shop keeper has only 20 thousand coins and require additional 1 lakh coins to run the business. The working person can give part of the excess money to the shopkeeper so that shopkeeper can run his business.

A person agrees to give 1,00,000 coins to the shopkeeper. The shopkeeper uses the money to develop the business and starts to earn profit of 30,000 coins per month.

It is logical that, the shopkeeper should share the profits with the person who gave the money. A formal arrangement of this is a loan given to a business person or deposit made in a bank.


The word "loan" means: something borrowed that should be paid back".

When a person takes money from another person or a bank, he or she has taken loan.

The word "investment" means: money given to someone or a bank to earn more.

The word "deposit" means: money given for safe-keeping and that, in turn, earns more money.

The word "lender" means: the person who gives a loan.

A lender can be a bank too.

The word "borrower" means: the person who takes a loan.

The word "principal" means: the money initially given on which earnings are calculated.

The word "interest" means: the earnings paid on the principal.

The word "interest rate" means: the interest amount calculated per unit time is the interest rate.

The phrases "loan duration" "deposit time period" mean: the time period or duration for which loan or deposit is effective.

The phrase "maturity value" means: the total value of money at the end of the loan or deposit duration.


loan : Money borrowed, which should be paid back at a later time.

investment : Money given, which should earn more money.

deposit : Money given for safe-keeping, which in turn, earns more money.

lender : A person or company giving a loan.
investor and depositor for investment and deposit respectively

borrower : A person or company receiving a loan.

principal : The amount of money given in a loan.
capital and deposit amount for investment and deposit respectively

interest : The amount of money returned in addition to the principal.

interest rate : The amount of interest per unit time per 100 of the principal.

loan time period / loan duration / deposit time period / deposit duration :     The time duration for which loan or deposit is effective, and at the end of which, the principal and any interest is returned.

maturity value : The principal and interest received at the end of loan or deposit duration.


The outline of material to learn "commercial arithmetics" is as follows.

Note: Click here for the detailed ouline of commercial arthmetics.

  •   Ratio, Proportion, Percentage

    →   Comparing Quantities

    →   Introduction to Ratio

    →   Ration & Fraction Differences

    →   ProportionsP

    →   Percentages

    →   Conversion to percentage

  •   Unitary Method

    →   Introduction to Unitary Method

    →   Direct Variation

    →   Inverse Variation

    →   DIV Pair

  •   Simple & Compound Interest

    →   Story of Interest

    →   Simple Interest

    →   Compound Interest

  •   Rate•Span=Aggregate

    →   Understanding Rate-Span

    →   Speed • Time=Distance

    →   Work-rate • time = Work-amount

    →   Fill-rate • time = Filled-amount

  •   Profit-Loss-Discount-Tax

    →   Profit-Loss

    →   Discount

    →   Tax

    →   Formulas