Skill: Calculate simple interest

Simple interest is the amount earned or charged based only on the original principal.

Use the formula

$$I=Prt$$

where:

• $I$ is the simple interest,
• $P$ is the principal, or starting amount,
• $r$ is the interest rate written as a decimal,
• $t$ is the number of matching time periods.

To find the total amount, use

$$A=P+I$$

Example

You deposit 800$in an account that earns$5%$ simple interest per year. How much interest will you earn in 3 years, and what will be the total amount?

Step 1: Identify the values.

$$P=800,\qquad r=5\%=0.05,\qquad t=3$$

Convert $5\%$ to a decimal by dividing by $100$.

Step 2: Substitute into the simple-interest formula.

$$I=Prt$$ $$I=800(0.05)(3)$$

Step 3: Calculate the interest.

$$I=120$$

You will earn 120$ in simple interest.

Step 4: Find the total amount.

$$A=P+I$$ $$A=800+120=\$920$$

Therefore, the interest is 120}$, and the total amount is$\boxed{$920}$.