Calculate simple interest

Simple interest is the fixed charge earned or paid on the original principal, calculated as $I=Prt$ , where $P$ is the principal, $r$ is the interest rate written as a decimal, and $t$ is time in years; the total amount is $A=P+I$ . The learner interprets interest as proportional to principal, rate, and time, converts percent rates appropriately, and distinguishes simple interest from compound interest, without extending to variable compounding or more advanced financial models.

Detailed Explanation: Calculate simple interest

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

Use the formula:

I=Prt

where:

$I$ is the interest earned or paid,
$P$ is the principal,
$r$ is the interest rate written as a decimal,
$t$ is the time in years.

The total amount is:

A=P+I

Example

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

Step 1: Identify the values.

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

Convert the percent to a decimal by dividing by $100$ :

4\div100=0.04

Step 2: Substitute into the interest formula.

I=Prt

I=(500)(0.04)(3)

Step 3: Calculate the interest.

I=60

You earn 60$ in simple interest.

Step 4: Find the total amount.

A=P+I

A=500+60=\$560

The total amount in the account after $3$ years is 560$.

With simple interest, the interest is always based on the original 500$, not on previously earned interest. This is different from compound interest, where interest can earn additional interest.

Learn by doing: Calculate simple interest

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

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