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

How do you convert time from months to years for calculating Simple Interest?

Back

To convert time from months to years, divide the number of months by 12.

Front

What is the formula for calculating Simple Interest?

Back

The formula for calculating Simple Interest is: I = P × r × t, where I is the interest, P is the principal amount, r is the rate of interest per year, 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 is the total amount after earning Simple Interest?

Back

Total Amount = Principal + Interest.

Front

If you borrow $2,000 at a 6% simple interest rate for 2 years, how much will you owe in total?

Back

Interest = 2000 × 0.06 × 2 = $240. Total Amount = 2000 + 240 = $2,240.

Front

What is the principal in a Simple Interest calculation?

Back

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

Front

How does the interest rate affect Simple Interest?

Back

A higher interest rate will result in more interest earned or paid over the same period of time.

Front

If you have a principal of $500 and an interest rate of 4% for 5 years, what is the interest earned?

Back

Interest = 500 × 0.04 × 5 = $100.

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.