Calculate simple interest

Simple interest is the amount earned or charged when interest is calculated only on the original principal: $I=Prt$ , where $P$ is principal, $r$ is the rate written as a decimal, and $t$ is time in years; the total amount is $A=P+I$ . The relationship is proportional to rate and time and linear in the principal, with attention to consistent units; compound interest and changing rates are beyond this scope.

Detailed Explanation: 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.

Learn by doing: Calculate simple interest

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Interest (Simple) - Interest from Principle, Rate, and Time

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