Simple Interest Practice

Front

What is simple interest?

Back

Simple interest is a method of calculating the interest charge on a loan or investment based on the original principal amount, the interest rate, and the time period.

Front

How is simple interest calculated?

Back

Simple interest is calculated using the formula: I = P * r * t, where I is the interest, P is the principal amount, r is the annual interest rate (in decimal), and t is the time in years.

Front

What does the principal amount refer to in the context of simple interest?

Back

The principal amount is the initial sum of money invested or loaned, before any interest is applied.

Front

If you invest $500 at a 5% simple interest rate for 3 years, how much interest will you earn?

Back

Using the formula I = P * r * t, the interest earned will be I = 500 * 0.05 * 3 = $75.

Front

What is the total value of an investment?

Back

The total value of an investment is the sum of the principal amount and the interest earned over a specified period.

Front

Calculate the total value of an investment of $1000 at a 4% simple interest rate for 5 years.

Back

Total value = Principal + Interest = $1000 + ($1000 * 0.04 * 5) = $1200.

Front

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any interest that has been added to it.

Front

If a loan of $2000 has a simple interest rate of 6% for 2 years, what is the total interest paid?

Back

Total interest = $2000 * 0.06 * 2 = $240.

Front

What is the formula to find the total value of an investment after earning simple interest?

Back

Total value = Principal + Interest, where Interest = P * r * t.

Front

How does the time period affect the amount of simple interest earned?

Back

The longer the time period, the more interest will be earned, as interest is calculated for each year the money is invested or borrowed.