Simple Interest

Front

What is Simple Interest?

Back

Simple Interest is a method of calculating the interest charge on a loan or financial product. It is calculated using the formula: Interest = Principal × Rate × Time.

Front

What is the formula for calculating Simple Interest?

Back

The formula for Simple Interest is: I = P × r × t, where I is the interest, P is the principal amount, r is the rate of interest (in decimal), and t is the time (in years).

Front

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

Back

Interest = 1000 × 0.05 × 3 = $150.

Front

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

Back

Principal is the initial amount of money that is either invested or borrowed before interest is added.

Front

How do you convert a percentage to a decimal for calculations?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 5% becomes 0.05.

Front

What is the time period in the Simple Interest formula?

Back

The time period (t) in the Simple Interest formula refers to the duration for which the money is borrowed or invested, usually expressed in years.

Front

If you earn $200 in interest on a $1,000 investment at a 4% interest rate, how long did you invest it?

Back

Using the formula I = P × r × t, we can rearrange it to find t: t = I / (P × r). So, t = 200 / (1000 × 0.04) = 5 years.

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 and also on the accumulated interest from previous periods.

Front

How much interest will you earn on a $500 loan at a 6% interest rate over 4 years?

Back

Interest = 500 × 0.06 × 4 = $120.

Front

If a bank offers a 3% simple interest rate, how much interest will you earn on a $2,000 deposit after 5 years?

Back

Interest = 2000 × 0.03 × 5 = $300.