Simple Interest

What is simple interest?

• Simple interest is the interest calculated on the total amount including interest accrued.

• Simple interest is the interest calculated on a compound interest basis.

• Simple interest is the interest calculated based on the time taken to repay a loan.

• Simple interest is the interest calculated only on the initial principal amount.

State the formula for calculating simple interest.

• I = P * r * t * n

• I = P + r + t

• I = P * r * t

• I = P / r * t

How does simple interest differ from compound interest?

• Simple interest decreases over time, while compound interest increases.

• Simple interest is only applicable to loans, while compound interest is only applicable to investments.

• Simple interest is calculated annually, while compound interest is calculated monthly.

• Simple interest is linear, while compound interest grows exponentially.

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Which of the following best explains the importance of understanding simple interest in financial transactions.

• Simple interest does not impact borrowing costs or investment returns

• Understanding simple interest is not necessary for financial literacy

• Simple interest is important in financial transactions for calculating borrowing costs and investment returns.

• Simple interest is only relevant for large financial transactions

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Can simple interest be negative? Explain.

• No, simple interest can be negative only if the interest rate is negative.

• Yes, simple interest can be negative if the time period is negative.

• No, simple interest cannot be negative.

• Yes, simple interest can be negative if the principal amount is negative.

What are the key factors that influence the amount of simple interest accrued?

• Principal amount, interest rate, time period

• Initial investment, compounding frequency, credit score