Skill: Calculate simple interest

Simple interest is calculated only on the original amount of money, called the principal.

Use these formulas:

$$I=Prt$$

• $I$ = interest earned or charged
• $P$ = principal
• $r$ = interest rate as a decimal
• $t$ = time in years

To find the total amount:

$$A=P+I$$

Example

You deposit 500$in an account that earns$4%$simple interest per year for$3$ years. How much interest will you earn, and what will the total amount be?

Step 1: Identify the values.

$$P=500,\qquad r=4\%=0.04,\qquad t=3$$

Change the percent to a decimal by dividing by $100$.

Step 2: Substitute into the interest formula.

$$I=Prt$$ $$I=500(0.04)(3)$$

Step 3: Calculate the interest.

$$I=60$$

You will earn 60$ in interest.

Step 4: Find the total amount.

$$A=P+I$$ $$A=500+60=\$560$$

So, the interest is 60$**, and the total amount is **$$560$. Remember to use the rate as a decimal and make sure the time is measured in years.