A Guide to Calculating Simple Interest Using the Simple Interest Formula

simple interest formula

The simple interest formula is used to calculate the amount of interest earned or paid on a principal amount over a certain period of time

The simple interest formula is used to calculate the amount of interest earned or paid on a principal amount over a certain period of time. It is represented by the formula:

I = P * r * t

Where:
I = Interest
P = Principal (the initial amount of money)
r = Interest rate (expressed as a decimal)
t = Time period (in years)

To calculate the simple interest, you need to know the principal amount, the interest rate, and the time period.

Here’s an example to help you understand how to use the simple interest formula:

Let’s say you deposit $1,000 in a savings account that offers an annual interest rate of 5%. You want to calculate the interest earned after 2 years.

Using the simple interest formula, plug in the given values:

I = P * r * t
I = $1,000 * 0.05 * 2

Multiply the numbers:

I = $1,000 * 0.1

I = $100

Therefore, the interest earned after 2 years would be $100. This means that you would have $1,100 in your savings account after 2 years.

Remember, the simple interest formula works for any time period, whether it’s months, weeks, or days. Just make sure to adjust the time period according to the given information.

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