Simple Interest

Front

What is Simple Interest?

Back

Simple Interest is the interest calculated on the principal amount only, without compounding. It is given by the formula I = P * r * t, where I is the interest, P is the principal, r is the rate of interest per year, and t is the time in years.

Front

What is the formula for calculating Simple Interest?

Back

The formula for calculating Simple Interest is I = P * r * t.

Front

If you invest $1,000 at a 5% interest rate for 3 years, how much interest will you earn?

Back

I = P * r * t = 1000 * 0.05 * 3 = $150.

Front

What is the principal in a Simple Interest calculation?

Back

The principal is the initial amount of money that is invested or borrowed before interest.

Front

How do you calculate the total amount to be paid back in a Simple Interest loan?

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Total Amount = Principal + Interest. For example, if you borrow $2,000 at 8% for 5 years, the interest is $800, so the total amount to be paid back is $2,000 + $800 = $2,800.

Front

What does 'rate' mean in the context of Simple Interest?

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The 'rate' is the percentage of the principal that is paid as interest over a specific period, usually expressed as an annual rate.

Front

If you have a principal of $5,000 and earn $250 in interest, what is the interest rate?

Back

Using the formula I = P * r * t, we can rearrange it to find r: r = I / (P * t). Assuming t = 1 year, r = 250 / (5000 * 1) = 0.05 or 5%.

Front

What is the time period in Simple Interest calculations?

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The time period is the duration for which the money is invested or borrowed, usually measured in years.

Front

How much interest is earned on a principal of $10,000 at a 6% rate for 4 years?

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I = P * r * t = 10000 * 0.06 * 4 = $2,400.

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 already been added.